Friday, August 20, 2010

Lessons from past cause skepticism among farmers about recent wheat price increases

On the surface Russia's ban on grain exports in the face of a devastating drought may seem like good news for U.S. farmers as wheat prices skyrocket, but lessons from the recession have left some wary. "As planting time approaches next month, they are balancing the possibility of greater income against the failed promises of the past, when bonanzas turned bust, sometimes at terrible cost," Kirk Johnson of The New York Times reports. "Even many who plan to plant more wheat are begrudging and hesitant — fearful that global dynamics could shift again before next year’s harvest." Wheat prices heat a two-year high recently, up 57 percent from less than three months ago.

"The market says plant more," Eugene Schroder, who farms about 4,000 acres in southeast Colorado, told Johnson. Still Schroder said he "feared that wheat prices were being driven by speculators, as was the case a few years ago, just before the recession, when the price soared and then crashed," Johnson writes. Schroder explained, "What is this wheat market? I don’t have a clue, and I’m a professional wheat farmer. There’s a complete lack of transparency." If good weather holds up over the next few weeks, Schroder plans to quadruple the number of acres for wheat.

Even before the Russian ban, U.S. wheat planting expectations were higher than last year. Now "a quirk of crop insurance, which locks in grain prices for policies based on a window that was set in the last few weeks — after Russia announced the ban on grain exports on Aug. 5 — could accelerate the trend, farm experts said, or prompt farmers in other parts of the country to give wheat another look," Johnson writes. Even with those factors, a wheat boom may not be in the offing. Last year fewer acres of wheat were planted nationally than any year since 1971.

Lessons from the past also factor in farmers' skepticism. "In 1972 and 1973, in the spirit of thawed tensions between the United States and the Soviet Union, the United States sold hundreds of millions of bushels of wheat to the Soviets after another disastrous crop failure there," Johnson writes. "And the response could well be same, too — overreaction and overproduction, leading to a glut and a crash in prices." (Read more)

No comments: