Wheat prices growing worldwide

On the heels of what can only be described as a stellar year for Colorado’s wheat crop in 2010, and with dry weather in major wheat-producing nations driving the price per bushel to record highs, and with state agricultural exports up 30 percent – or nearly $70 million – in the first quarter of 2011, the sound of Northern Colorado wheat farmers clicking their heels should be deafening.

It’s not.

Killing the joy here is the weather. With more than 80 percent of Colorado’s wheat production exported, higher prices overseas could mean a lot of money for farmers. But low winter moisture and poor stands have the Colorado Association of Wheat Growers projecting a 39 percent decrease in wheat production from last year’s record harvest. The 2011 crop is “significantly worse that last year, due to dry winter and spotty germination,” according to the Colorado Association of Wheat Growers.

For Colorado winter wheat, adequate precipitation through the winter is key and it just didn’t happen this time. The National Weather Services reported that last winter’s snowfall in Northern Colorado was 50 percent of normal; Fort Collins residents saw 47 inches compared to 22 inches of snowfall last winter.

Jerry Cooksey, a farmer in Weld County, said that his crop is “average or less. Due to drought in the fall, winter and spring, we didn’t get plant populations needed.”

However, precipitation in the last month boosted his wheat from poor to average, Cooksey said.

But farmers who can and want to capitalize on current economic trends might look to the Colorado Wheat Administrative Committee, which is working hard to help make it happen.

Korea was the sixth largest U.S. wheat buyer in the world with purchases of 60.3 million bushels in the recently completed 2010-11 marketing year. On June 21, the CWAC hosted a team of wheat buyers who represented purchasers of 90 percent of U.S. wheat exported to Korea in 2010-11.

The trade team toured Linnebur Farms near Byers to see hard red and hard white winter wheat production, visited the Cargill AgHorizons unit train loading building in Byers, and toured the ConAgra Flour Milling Co. and Commerce City Grain unit train loading building in Commerce City.

Trade team member Kyung-Yong Park, General Manager of CJ CheilJedang Corp., reportedly aware of droughts in Texas, Oklahoma, Kansas and Colorado, said that he was concerned about the current wheat crop this spring. However, he noted that Colorado’s crop was improving.

Production down, prices going up

Even so, worldwide wheat supplies are tightening. Inventory has dropped the most in five years to 8.8 percent, according to Rabobank International, a financial services group focused on food and international agribusiness.

Colorado wheat production in 2011 is projected at 66.5 million bushels compared to 105.75 million bushels produced last year.

The National Agricultural Statistic Service and USDA’s World Agricultural Outlook Board’s World Agricultural Supply and Demand Estimates also forecast lower wheat production worldwide.

“Production of all classes of wheat is forecast at 2.058 billion bushels, 150 million smaller than the 2010 crops,”  farmdocdaily, an online publication of the University of Illinois, recently reported. “Consumption forecasts for the 2011-12 marketing year were unchanged, resulting in a 687 million bushel projection of year ending stocks, 15 million below last month’s projection. The 2011-12 marketing year average farm price is projected in a range of $7 to $8.40, 20 cents higher than the May projection. Outside the U.S., the projected size of the EU crop was reduced by 262 million bushels (5 percent).”

Lower supplies are also pushing up  wheat prices in Colorado. Darrell Hanavan, executive director of the Colorado Association of Wheat Growers, said that prices for Colorado wheat are currently in the range of $8 a bushel, and he predicts an “average all-time record of $7.50 per bushel for the full 2011-2012 marketing year.”

This is compared to the average price of $5.60 per bushel during the past marketing year, he said.

Due to demand, price increases, and low world inventory, if Colorado were still experiencing last year’s all-time record yield of 45 bushels per acre, farmers might be a little more optimistic.

“If you could get an average crop yield, you would be in pretty good shape because prices are so high. The high mark used to be $6 a bushel,´ said Jay Parsons, Assistant Professor for the Department of Agricultural and Resource Economics at Colorado State University.

With this year’s harvest expected to produce only 20 to 30 bushels per acre, some farmers, like Cooksey, are looking to other crops.

“We tore up 30 percent of our wheat acres. We just didn’t have the stand,” he said. “The land is going to corn and sunflowers.”

Other farmers, depending on how the plants look, might shrug off this year’s entire wheat crop and look to insurance to bridge the gap.

Insurance to the rescue

The expense of harvest and fertilizing are formidable for a farmer with a poor crop, but that’s what crop insurance is for. Farmers who cash in on the indemnity payment “still get to be paid the 20 bushels per acre set by the policy,” CSU’s Parsons said. In cases like these, “you’re almost better off with a complete disaster, compared to trying to harvest a 20-bushel-an-acre crop.”

For all farms that can and want to capitalize on current economic trends, there is plenty of opportunity through exporting and various government programs.

Ex-Im, the export-import bank of the United States, provides financial support to small business exporters, including export credit insurance protecting against the risk of non-payment by foreign buyers.

Tim Larson, a senior international market specialist for Ex-Im, said that the bank is always available for agricultural businesses, including producers of breed stock, specialty grains and processed foods. “I wish people used it more,” he said.

Programs offered through the Western United States Trade Agency can also minimize the risk of exporting agricultural products. Education about markets to help small agribusiness grow their global markets is available, as are trade events that target markets around the globe, and 50 percent cost reimbursement on international marketing programs. Seminars are offered once a year on how the program works.

WUSATA is a nonprofit trade association composed of 13 agricultural promotion agencies and exists to help develop exports. Colorado is a founding state of WUSATA.

Additionally, the Markets Division at the Colorado Department of Agriculture provides assistance to Colorado agricultural and food companies to develop market opportunities in Colorado, across the nation, and around the globe.

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