Perfect weather and a bumper wheat crop – impact on the market

A great example to start you off looking at how economists understand markets: after a run of rain-wrecked years, British farmers are bringing in the last of what looks like a bumper cereals harvest. 2014 could be the biggest yield ever for wheat. Good news. But for whom?

The Guardian has a great article on the topic. It’s a paradox really: a bumper harvest sounds great, but for farmers, the abundance comes at a heavy cost: the plentiful grain means prices are on the floor. “It’s a rock bottom price at the moment,” says one farmer, not far off half the price in 2012. “I budgeted for selling my wheat at £150 a tonne, but just this morning I got offered £103. I didn’t take it”. He is thankful he sold some of his crop ahead of the harvest through futures contracts. “If I had not sold some forward, I would be in the mire, despite having some of the best yields I have ever had. It’s pretty sad but, price-wise, you end up hoping that somewhere else is going to have a bit of a disaster.”

Farmers are business people, after all! The good news for UK farmers is that harvests have been quite poor in France and Germany, so that should hold up prices. UK grain is ‘ripe’ for export. Trade markets are being disrupted by conflict in Ukraine and Russia, which are big in both import and export markets. Demand is being disrupted, as well as supply.

Some nice quotes from the article from a farmer, looking down on his farm from the North Downs. “In the summer you saw the countryside open up before you, all golden brown, and it’s one of the great things about being a farmer,” he says. “It’s is a great pleasure when you go out at harvest and, after all the hard work over the years, you see a lot coming in. You get the joy and satisfaction of harvesting a record crop, but the prices takes the shine off it.”