21 August 2019
SVAROG INSIDER: Sales Department
Exact sale of products at a certain time in the future at a pre-agreed price is what the forward contract means to us
The search for protection against the risk of changes in the value of the underlying asset necessitated the use of forward agreements. Taking into account the agricultural business, it is justified to conclude forward contracts and dictated by the features of this market: at the height of the season it is difficult to conclude a large number of spot contracts, it is more advisable to administer a certain number of forward contracts during the year.
How the Sales Department, Svarog West Group Corporation conducts its activities, as well as more about forward contracts, its director Ievgen Iavorskyi will tell us:
“First of all, for us, the basic is a business plan that is a guideline in our activities. Like any effective enterprise, we strive to use our resources as productively as possible, therefore, together with other company’s service departments, we develop behavior and decision-making strategies based on on our goals.
Planning crops and their volumes for the domestic market and for export, forming a price indicator (financial planning and analysis department) for the adopted crop rotation, crop and crop volumes (agronomic service), negotiating with potential partners and accreditation for working with them (legal department), crop planning (processing and storage department), logistics planning (transport department), as well as continuous monitoring and analysis of prices (company traders), all this affects the volumes for concluding forward contracts and the decision is made taking into account the highest economic efficiency.
Communicating with our partners, we take into account their forward programs (for every season in all large companies there is a plan), and if the price interests us, we conclude a contract (we calculate the place of delivery and the place of loading). Forward prices are fixed gradually, a sales plan and a breakdown by volume are drawn up for each culture, and it is very important to monitor trends and understand when to fix the price most effectively. Under the phrase "flexible price", several algorithms can be considered – this is also the average for the spot, fixing after the sale, where the date can be chosen at your discretion, also fixing the volume and agreeing the price to the date (when the highest predicted one is selected), fixing the premium to volume and stuff. We also consider prepayment, which generally does not affect the price, but depends on the conditions of the forward programs of our partners during the price fixing process".