By using the new contract, farmers can set a price and a date in the future for selling their wheat without having to worry that the price of wheat might fall in the future and that they might stand to lose.
Similarly, bakery producers could use this contract to set a definite price for the wheat, sparing them from an increase in wheat prices.
The contract can also be used by speculators to bet on the rise or decline of the wheat price.
At present, there is no reference for the price of wheat on the local market, with farmers selling their wheat on the roadside. They are at the mercy of big wheat traders, who have higher negotiating power, buy cheap and then sell at prices on international markets.
“As future users, we believe these contracts on the price of wheat can offer several advantages, they will bring stability to the grain market, an increase in competitiveness and offer transparency in the formation of the price of wheat,” says Cezar Popescu, commercial manager of bakery producer Boromir.
Brokers say in the beginning the contract will not be very liquid, but expect it to be much better received by the masses, considering that almost everybody is interested in the price of bread and of wheat. Around 60-80% of the price of bread is accounted for by the cost of wheat, which it will be possible to follow daily on the stock exchange.
“The wheat contract should have been available on the stock exchange many years ago. (…) You can talk to anyone about the ton of wheat, about the looming food crisis. It is a product that can become news, it is interesting for the public,” says Grigore Chis, general manager of brokerage firm SSIF Broker Cluj (BRK.RO).
The stock exchange is hoping to attract as many producers and consumers as possible to trade this new type of contract on the stock exchange.
“Romanian agriculture has a significant growth potential and we have to be pioneers and help agriculture reach its full potential. Through these futures contracts we are launching, we are hoping producers will hedge their businesses,” said Valentin Ionescu, general manager of BVB.
In Romania, there are around 3 million farmers and over 20,000 companies exploiting farmland. In the bakery sector alone, there are around 6,000 economic operators, and on the black market, the number could be similar, according to market specialists.
“I am happy that there is now more concern for the markets. (…) I think a stock exchange system could be put together in order to sell grain and in order for Romania to join the club of wheat exporters,” said agriculture minister Valeriu Tabara.
(English version by Daniela Stoican)