This is the initial working draft of a longer essay on wheat markets. Please feel free to send comments or questions via “Contact”.

The Problem

Most of us completely understand that owning something that is increasing in value is a natural and proper thing to strive to do continuously. It is also  understood and intuitive that if a thing is losing value it is no longer beneficial to own it and in fact it can become burdensome to continue. Even a child can grasp this concept easily and naturally.                    

Why then, is it so difficult to hold wheat in an uptrend and to sell it in a downtrend? To answer this question, it is first necessary to understand how wheat comes to be in a trend.

The object of wheat farming is to draw value from natural elemental factors, from earth, water, sun and seed. The result of bringing this miraculous process together is ownership of the most basic of food substances for consumption by people. The moment wheat was concentrated, planted, watered, protected and gathered into quantities large enough to be divided and shared for food, a market was born. Wheat has many of the attributes of capital, or “money”, as it always retains value among people; great value in times of scarcity, less in times of abundance. It is tradable, portable, storable, and essential. It has been called “The staff of life”, wars have been fought over it, people have died for want of it, and empires have risen and fallen based on its presence or absence. Wheat is a form of gold, better in some ways, since one cannot eat gold.

So we make wheat, with a little help from nature. Then if we have more than enough to make our daily bread, we can store the surplus against later scarcity, or we can trade it for shelter, clothing, or other essentials…or it becomes capital for growth of freedom, of safety, of power over our environment.

But “making” wheat is not an enterprise without effort. This food does not simply drop out of the sky in sacks. Someone has to gather seed, till, plant harvest and deliver, followed by grinding into flour baked into bread and a hundred other products before it can be consumed. There are many steps and much time required to complete these processes and realize the true value of the little wheat berry. All of this is ‘cost”. They say time is money, and so it is. Possessing wheat has a basic cost that anyone with an abacus can determine to the farthing what it costs to replace wheat taken from the storage bin. So another kind of value is added to the natural value of wheat. The natural value of wheat can change over time, but it is never zero. How this value is measured and determined is what gives rise to a “market”, a central location at which those who have grown wheat, harvested it and are able to deliver it can meet with those who must acquire wheat for food or feed.

The seller “offers” and the buyer “bids”. Buyers compete with other buyers and sellers also try to out-offer each other. Between the offer and the bid, the price is created, the point where buyer and seller agree. If there are many sellers and only a few buyers, the price moves lower until all of the sellers are are satisfied that they do not need to sell any more. When there are more hungry buyers than there are sellers, then the price moves upward until the buyers are unwilling to pay more or the sellers have exhausted their supplies. The balance between the two sides is most easily and quickly determined when there are many of each, making the market “liquid”. An illiquid market is not as beneficial to either side. If there are buyers but few or no sellers, securing any transaction at any price may be nearly impossible, as the sellers may only offer their supplies at extremely high prices, or refuse to sell at all, while the buyers can bid very strong prices and still be unable to secure supplies. On the other side, if there is great abundance of wheat and many sellers, the competition among sellers leads to much lower prices, until there no seller is willing to accept the next lower bid.

The serious imbalance of supply and demand is historically rare but has been the cause of great upheaval in societies, theft of wheat by force, or the refusal of producers to plant, leading to a spiral of scarcity or famine. The factors that lead to such violence are sometimes natural, as in drought, and sometimes created by societies, as in war. There have been some powerful groups that have realized that ordinary people who are starving will often do nearly anything for food. It is a self-correcting paradigm. Lack of supply leads to high prices, which leads to greater production. Large surpluses lead to low prices, a reduction of production and eventually smaller supplies. All of this takes time to occur, as in most regions on earth, crops are once a year by nature, and politicians are often slow to learn.

So wheat is a central piece to a great puzzle. A valuable piece. One which bears very deep, instinctive value and is deeply satisfying to farm and to own. The stuff is hard to let go of!