According to some onion marketing agents, contracts are a useful hedge against risk. Others say sudden and sometimes sustained market spikes make the risk worth taking.
Retailers, on the other hand, are trending toward contract buying, marketers said.
“With the economy, Wal-Mart and others are changing the way they’re buying,” said Marty Franzoy, manager and owner of Hatch, N.M.-based Skyline Produce, which also has acreage in Las Cruces.
That has been a blow to some growers and shippers, he said.
“You set up your facility for millions of dollars and they just dump you,” Franzoy said.
“This last time, they want to go to the grower instead of the broker that may have onions or not, so you have to have the onions.”
Brokers end up being frozen out, Franzoy said.
“It has sure changed things up,” he said.
“That makes me scared to seek that business and spend money on equipment because they may invite somebody else.”
It’s a more economical way to do business for retailers, though, Franzoy said, and he said it likely would continue to move in that direction.
“If it’s cheaper, they’re going to do it,” he said.
Franzoy said he doesn’t sell any of his onions on contract.
“I usually just go on the market, and where I’ve made most of my money is playing the market,” he said.
He said he also knows it’s a risky strategy, but acknowledged that some growers prefer to play it safe through contract pricing.
“Farmers are competing themselves out of business, chasing the same business,” he said.
Other growers play it safe.
“Everybody around me has a (contract) program, and most of their onions are already priced and spoken for,” he said.
Price spikes cost those growers, he said.
“There (are fewer) onions for those who don’t play that game. I’m making money in that,” he said.
Contract pricing represents a major change in the onion business, said Wayne Mininger, executive vice president of the Greeley, Colo.-based National Onion Association.
“There’s a lot more forward pricing and contracting than there was quite a few years ago,” he said.
The onion business has changed in multiple ways, including the numbers of varieties and formats available to consumers, but contract pricing may be the biggest change, Mininger said.
“It used to be all the product was a post-market and all the handling and distribution was spot market, and there was no 60- or 90-day price,” he said.