Poor harvest leads to grain contract losses

Many farmers stand to lose thousands of pounds this harvest, after selling more grain forward than they have produced, leaving them in default of their contracts with buyers.

With average wheat yields about 10% down, and barley yields also disappointing, many farmers will be facing a shortfall on their contracts.

Prices have almost doubled from last year, meaning producers will have to stump up a significant sum to cover the contract.

‘Double whammy’

Mark Cheyney, of Middle Farm, near Alresford, Hampshire, sold 578t of Optic malting barley forward for £100/t.

“It seemed a very good deal at the time,” he said.

But the crop yielded just 3.7t/ha (1.5t/acre), leaving him with just 310t available, while prices had risen to £160/t.

“It’s a double whammy – we’ve got a dreadful crop and we’ve got to pay £60/t to make up the contract. But we just have to take it and move on.”

Discuss options

Independent arbitrator, Peter Brown, said there was little farmers could do to escape the default charge.

“Merchants sell with one hand and buy with the other – it is a fallacy that they are making money out of this.”

There were options such as selling discounted grain forward for next season, to delay the outlay, so it was important for farmers to discuss the options with their merchant, he said.

‘Lock default prices’

Many contracts also offered a 5% or 15t tolerance, which could reduce the cost significantly.

And with the market rising daily, it was also critical for farmers to raise any potential shortfalls with their buyer and lock into a default price now, before the market rose any further, he added.

Those looking at selling forward for next year’s harvest could consider selling an acreage rather than specified tonnage, to prevent such problems happening again.

‘Reconsider’

But anyone considering trying to get out of a genuine contract should reconsider, as it could end up costing them more in the long run, said Guy Gagen, chief arable advisor at the NFU.

“Usually the farmer would not have agreed to a contract if they weren’t happy with it on the day. We have worked hard with the trade to encourage longer term contracts and cannot condone people breaking contracts deliberately.”