What do we do with the wheat?
Stage One – Now Closed
What will we have?
Peter: At harvest time we will have wheat that will be collected in a combine harvester and transported by tractor and trailer to the store on the farm. Once cool and dry the grain can be safely stored for a considerable time – in excess of a year. However my store is not certified for long term storage so I need to move the grain by the end of September 2016 either to another store that is certified for long term storage or sell and load it on a merchants trucks. Trucks carry about 29 tons in a full load, (we have estimated a yield of around 85 tons but its not easy to estimate yield, especially with the reduced nitrogen rate we now have) so hopefully the wheat will fit on 3 trucks otherwise, if there is only a bit left in the shed, we will be charged extra by the haulier for a part load.
The wheat is JB Diego, a variety classed by HGCA as a Feed Wheat (meaning it is a hard wheat whose primary purpose is to be used to feed animals – although, for those interested in baking it can have a HFN (Hagberg Falling Number) of 298 – values in excess of 250 are required for bread making. The quality of the wheat will change the price we can get for it, which is almost impossible to indicate until much near harvest.
The wheat will be tested for a number of quality issues but the primary ones are moisture content and specific weight. If these are outside contracted parameters then penalties will be imposed by the merchant – and in extreme cases the load can be rejected by the merchant. We can arrange for testing by a merchant of the harvested wheat before sale to ensure that everything is as it should be before sending the wheat off the farm.
A Note about the straw:
After the wheat has been combined we will be left with the Straw. There will be a separate decision as to what to do with the straw coming soon.
The current options that Peter usually considers and has done previously:
Peter: We can sell the wheat on the futures market, this means that we sell a promise of wheat. Its a contract that says we will deliver x amount of wheat on x date at a particular fixed price (which is set by the market). Essentially selling on the futures market is gambling – we would be betting that the price is higher at the time of sale than it will be at harvest or the contracted delivery date – so essentially we would only sell forward if we thought the price will fall. If we think the price will rise we hold the grain until the market climbs and sell at the top of the market. There are a few tools out there that let us hedge our bets allowing us to sell now and take advantage of any increase in price – but these tools come at a cost!
And don’t forget that there are a number of very wealthy and very experience organisations out there – like Goldman Sachs – who are happy to take your bet because they think they will win! The only times I’ve sold forward was on a market that had been falling steadily for a long time and didn’t look as if it was going to stop falling. That did work out ok for me but, at this time, the market has already fallen to historic lows (in real terms) and I can’t see that it can fall by a significant amount now. Or at least I hope not! So will the market rise? My crystal ball is pretty opaque at the moment. I very much hope so but I think the most likely situation is for the market to continue bumping along the bottom.
Wikipedia on Future’s Exchanges Click here for document on speculation in the global food market (its a long and interesting document but you can sift through for clear explanations of how Future’s work)
We can sell the wheat at the time of harvest. In the past Peter has sold to Openfield (a farmers cooperative) and Frontier (owned by Cargill one of the ‘big four’ global grain traders).
Peter: I try to keep my selling simple and when I think the price is as good as its going to get, and also considering the need to get money back into my bank account, I call some merchants and sell my wheat taking the price at that time, called the ‘spot price’. Selling is always difficult and nobody (or at least nobody who’s honest) gets it right every time. Sometimes it works out good; sometimes you wish you had sold sooner or later. I always try to console myself with the words of billionaire George Soros “I don’t know how I became so wealthy; according to my critics I buy to dear and sell too cheap”
Learn more about Openfield
Learn more about Frontier
The legalities / Certifications:
Peter: When the grain is sold each truck load goes with a passport – a document that identifies the source of the wheat, its condition and that it comes from a farm that is Red Tractor assured. The assurance comes after a visit from an inspector who checks for a whole raft of criteria to ensure that the farmer is behaving responsibly and that the wheat will be safe and fit for sale. It is an onerous process and one that I don’t enjoy. I’m told that assuring my wheat gives me access to better markets and better prices – I can accept the access argument but the price?! Its never been lower in real terms.
Click here to learn more about Red Tractor
Exploring Other Possibilities of what could happen to the Wheat?
Peter: Selling into the feed wheat market we will have no say in the final destination of our wheat. It is a globally traded generic product that could go to a local livestock farmer; or go for bio-fuel production; or go for starch manufacture; or be exported.
For example it may well go for export to Spain or Holland via Lingrain (a subsiduary of Openfield) at Boston Docks, Lincolnshire.
A more experimental approach, what would it require?
There may be alternative, different or imaginative uses for the wheat. Please allow yourself a bit of time to dream up what these might be… at the same time please give a sense of the practicalities and scale of any ideas you have. It could be for instance to sell direct to a user or consumer in some way, maybe local milling and flour, wheat beer, craft objects or as an artwork on the art market.
This decision process.
This will be at least a two stage process. Peter will be able to make a visual assessment of the crop in June but it will only be a guess until the combine harvester gets into the field.
We have not fixed any future dates for the stages in this particular decision process. We are keen that this first stage is an open wide-ranging discussion of possibilities and options which runs for as long as needed. We will inform you of any next stages as they come up.