Skip to comments.Farmers in Fear: Risk of Higher Wheat Prices Has Many in the Industry Scared to Death
Posted on 03/16/2008 9:28:25 PM PDT by TigerLikesRooster
Sat March 15, 2008
Farmers in fear
By Jim Stafford
Prices paid to Oklahoma wheat farmers for their grain have surged to historic highs, but the prospect of $12-a-bushel wheat at harvest has yielded a surprising side effect, said farm economist Kim Anderson: Fear.
The July wheat contract on the Kansas City Board of Trade closed at $12.21 Friday, down 44 cents from the previous day, but still hovering near historic levels.
So, what is to fear from wheat priced at three to four times what it was just five years ago?
"They are scared to death because their risk is so much higher than it has been, said Anderson, a professor and extension economist at Oklahoma State University.
"The story here is not just that farmers are receiving three times higher prices than they did three years ago, he said. "His cost of production is two-and-one-half to three times higher than they were three years ago, and when the cost of production goes up, his risks are three times higher.
The inputs that have contributed to the rising cost of production include fuel, transportation and fertilizer, said Mark Hodges, executive director of the Oklahoma Wheat Commission.
"All of those are at record highs, as well, Hodges said.
The rising commodity prices most other grain prices are at historic prices, as well have created a fragile bubble in the agricultural community, Anderson said.
Grain elevators are facing the prospects of opening wider lines of credit to make cash payments for the 2008 crop when it is sold in July. Elevators that permit farmers to "forward contract their crop must meet margin calls or interim payments until the crop is harvested.
A major crop failure like the last two years would be catastrophic, said Mike Cassidy, president of Cassidy Grain in Frederick.
For instance, Cassidy grain is going to need a $10 million to $12 million line of credit this year after operating on a $2 million line of credit for the past quarter century, Cassidy said.
"You stumble your toe these days and you are out of business, Cassidy said. "These historical high prices are going to radically change the way the grain merchandising industry operates.
If farmers have forward contracted their wheat, meaning they have sold their crop in advance at a predetermined price, but can't deliver it because of a poor harvest, it will cascade throughout the industry, he said. Grain elevators will demand payment from farmers, who have nothing to pay. Banks will demand pay"It's a financial market, he said. "There are billions and billions of dollars being invested (in grains). It's Las Vegas. It's not the wheat market.
Despite all that, wheat growers are not exactly cowering in their fields, said Tim Bartram, a Logan County wheat farmer and executive director of the Oklahoma Wheat Growers Association.
"From a grower's perspective, we feel like (prices) are getting where they need to be or getting close to have a chance of making any money, Bartram said. "I hear some rumblings from an elevator point of view, but if we stay (at these price levels) for a period of time, those issues will straighten themselves out.
Farmers are more concerned with drought conditions and the health of their wheat than they are with $12 wheat prices, Bartram said. The financial situation leaves farmers more "nervous than scared, he said.
So, has the industry said "so long to $3 per bushel wheat for good?
"I certainly hope so, Bartram said.
"If we haven't, then the price of fertilizer is going to have to come way down and the price of fuel has to come way down and we are going to have to say goodbye to a lot of wheat farmers if we get back down to that level.
I try to pay attention to what farmers are saying.
Is there any good news anywhere?
More fear-mongering. Deere has a 1 year waiting list for new harvesters. Good farm land in mid-west is at record prices. Cargill and ADM quite desperate to get grain into their silos, so spreads vs. futures are good. Crop prices can be locked in now via futures, if farmers want, so they have a guaranteed price for their crop, and crop insurance can cover weather disasters.
I posted last week that Safeway had flour (General Mills) on sale for 4 five pound bags for $5.00. A dollar and a quarter a bag. I hope at least some posters read it and took advantage of the sale. It won’t be that cheap again.
$ 5 diesel is too costly. Farmers cannot afford to plant and/or harvest crops. Guess that means we all will have to grow our own wheat . . .
President Weakdollar retires in 9 1/2 months.
No. It’s an election year.
El Presidente Bush-o has a slow, down home, lasse-faire attitude about everything. It is like he cannot react. Something happened to his reflexes. He can’t respond.
Yes, so answer me this:
Care to predict what the basis is going to be when diesel appears headed for $5?
I wouldn't bet on that................
But, but, I thought prices were high due to ETHANOOOOOOL!!!
Oklahoma farmers might be a bad example - at least, the ones who own their own minerals rights under their land. Those farmers should be doing well right now.
The Gravitational Constant seems to be holding steady.
I know I would be scared silly if I suddenly started making 3-4 times my previous salary - wait, what?
I just found out I’m alergic to wheat. Can’t eat it. Prefer beef steak (grass fed) with a salad (home grown) anyway.
Really. What is W doing these days? Gives a rah-rah speech about the economy and says he’ll back McCain. Otherwise he’s on early retirement.
The “miracle” of American farming is oil. Oil for tractors, energy for fertilizers, petroleum products for pest control... we probably put more energy into our food than we get out...
Oh, I’m probably wrong. I am often. Thanks for setting me straight. ;-)
Sure. It’s not snowing at the moment. It’s a balmy 25F outside. And the wife finally went to bed so I can surf without the background yapping.
I think the point is that if there is a drought or a storm or something and the crops fail, farmers are in major debt. If they do have insurance the insurance companies are at risk of needing a bailout. Add a major crop failure and an insurance bailout to the current economic stresses and strains and you are talking about some really really scary stuff.
I think. I’m no money expert.
I’m sorry for that. Wheat is a favorite, here.
Can you eat corn? Corn tortillas can be used in place of wheat bread, I think.
some people are doing very well in this economy.....
I am not net savy, but are there people who would like to post PRICES at supermarkets etc that are good value?.....we can all make it thru this recession/inflation/stagflation/depression working together.....any volunteers?
The root cause is inflation as in the dollar is worth less.
The fed is inflating its way out of the current banking crisis. Everyone who holds dollars (or dollar based assets) is the loser.
So some people will make a lot of money by producing small milling units (grinders) for families and individuals. It’s time for victory grain gardens.
I don't. For years farmers have been bellyaching about low commodity prices, and have soaked the taxpayers for price subsidies to bring the market price up to the high level it assumed briefly during World War I. Finally, the ag sector has its wish: record high commodity prices. Why is this a problem? Costs are up too, but those years of low wheat and corn prices were at the same time years of low prices farmers paid for the commodities they used in production. Anyone whose business sense is not numbed by government subsidy can maintain a profit when prices are low and when prices are high.
If you ask a farmer in New Zealand why he hates America, the answer has nothing to do with Iraq or 9/11. It's because while he toughs it out in the free market, his American competitors are subsidized. Oh, and we limit imports of their lamb also, to keep farm prices high.
Why are we importing wheat?
From a FR thread posted a few minutes after you submitted the above, and is presently listed right above this thread we are here on
Could it be? Someone may need to give that fellow some warm cookies and milk!
This idiotic ethanol policy of the goobermint has indeed caused price increases in numerous mkts...but wheat has not been affected by this lunacy except very modestly, and indirectly.
However, I have noticed over the past three years prices have crept, jumped and leaped higher and higher.
It seems a few short years ago prices would go up and then return to normal after a while.
But for the last few years those people I know who live on a fixed income have really started complaining about the rise in everything from medicine, fuel to groceries.
I can understand that many have good jobs, raises and vacation time but all of that is fleeting if the company you work for decides to raise share prices buy downsizing.
So before jumping on the old argument that it's just a bunch of people who need to go out and get a real paying job be very careful.
I am a believer that America runs in slow up and down cycles and then there is an adjustment.
I think the economy is trying to make an adjustment but the government is determined not to let real correction take place.
Bailing out every Tom Dick and Harry financial company reeks of Socialism.
Just the lowly opinion of a red state wannabe.
Ridiculous exaggeration. There is no possibility that this can be true. Fuel is not three times more expensive than three years ago, and tractors are not three times more expensive. Perhaps this is true of seed or fertilizer but that cannot explain such a staggering increase in the cost of production.
I think the farmers are poor-mouthing because they don't want the public to yank the Federal farm-support teat away from them now that crop prices are near all-time highs.
Cherry - I have often thought of a running thread about just that - ways we can all get together and help each other. There are so many things we can do - and we have so many posters here.
I personally, have been stocking up for quite some time, now. All the necessities - with the possibility that the grocery stores could be closed for awhile.
I have a major supply of water, too - batteries, oil for lamps, etc. It’s just a security for me. I have always been like that. Guess it is because of the stories my dad told me about living through the Great Depression.
Record grain prices....so it is time to phase out farm subsidies....
Fertilizer and other chemical costs HAVE doubled and tripled. Fuel prices have gone up about 30%, seed prices are through the roof (have nearly doubled).
I live right here in farming country, and the majority of our church members are farmers.
Hmmm. I wonder why this analogy isn't used to support higher oil company costs? Is it because oil companies are considered evil?
This is what futures trading is for. If they’re happy with $12 wheat, farmers can lock in that price by selling futures at that price. If they want to risk a $12 price on the hopes that the price will be even higher when they deliver this fall, they can do that instead.
I hope farmers do not go for toxic deal which promises phenomenal payout. That would be the undoing of all of us. They can still make good money by playing safe.
What’s he supposed to do? Go out prospecting for oil?
“You stumble your toe these days and you are out of business, Cassidy said.
Did the author go to the Yogi Berra school of journalism?
Speaking as an actual farmer, I can say that almost everything you just wrote is wrong and has been not true since the “Freedom to Farm” act of 1996. There are no more subsidies to “bring up commodity prices.” There are marketing loans, loan deficiency payments, support for conservation/wildlife purposes, etc, but there are no more price supports for maintaining minimum commodity prices.
As to sheep numbers: imports of lamb from Australia and NZ increased throughout the 90’s. There are no limits on lamb imports from either Australia or New Zealand. Their below-cost exports to the US are a large factor in what has effectively killed the US sheep industry. When the US dollar was strong and the NZ/Aussie currencies were weak, they undercut the US sheep producers with meat prices that could not be matched. US Sheep numbers have increased slightly since 2004, in part because Australia/NZ’s currency started to strengthen against the US dollar.
During the Clinton administration, US sheep producers filed a WTO damages claim against the Aus/NZ sheep producers. By 2001, the WTO had ruled in the vast majority for the Aus/NZ producers and the US had to remove all the quota restrictions placed in 1998 by the Clinton administration.
And while commodity prices are higher than they have been in years, they still are at least 50% lower than they would be if you took commodity prices at the point we left Bretton Woods and adjusted those commodity prices for inflation.
What is difficult to contract is the basis.
And with $5 diesel around the corner, the basis is going to swing wildly.
I suppose you’re saying this from the perspective of being a farmer and looking at your books, right?
No? Golly, why doesn’t that surprise me?
OK, here’s some facts:
In 2001, I paid less than $1.00/gal for dyed fuel. Actually, now that I think about it, I paid about $0.87/gal.
In 2003, it was about $1.80+/gal, depending on when during the year I was buying it.
This spring, dyed diesel is about $3.40/gal last I checked. And you can’t lock in a price for more than a few days.
Fertilizer: In 2001, I paid $245/ton for 11-52-0. This spring, the quoted price was $850/ton. That’s if you can get the fertilizer. China is buying fertilizers by the boatload as fast as they can.
Generic glyphosate had gotten down to about $12/gal for a 4lb product two years ago. Now it is about double that - for no reason that one can find.
On top of these prices, for many farmers the price of clear diesel is crushing their profit margins. If you want to haul product to markets, the cost of trucking is going up very rapidly for two reasons - first, the obvious cost of fuel. Second, because there are more and more truckers simply parking their trucks. They can’t raise their prices fast enough, so there are fewer truckers out there to haul inputs and outputs, so the fewer that are left are passing on their increased costs rapidly. It used to be that the haul on our dairy hay into California was $40/ton. Now it is $85/ton. The price that the dairymen will pay isn’t going up that quickly, so if dairyman will pay only $200/ton for the hay, and the trucker’s per-ton shipping charge has gone up from $70 to $85/ton, guess who is eating that increase? The hay farmer.
Same deal with grain farmers. Their shipping costs are reflected in the basis on grain contracts.
And this doesn’t deal with the increases in lube oil (I used to get a 55gal drum of 15W40 engine oil for $245 - now it is $650 and going up every week), lubes, greases, etc. Steel costs have gone up, so steel tillage parts have about doubled in cost in the last 5 years. Parts that use specialty steels like bearings have gone up substantially in the last five years.
Tires: If you can get them, they’ve more than doubled since 2003. I used to buy a 18.4R38 tire for $550 or so. Now that tire costs $1400+, IF you can get it. Farmers are down to only two tire companies that make ag tires in most sizes. The surge in the mining industry has made tire manufactures chase the big industrial tire market. Why screw around with a farmer complaining about paying $1400+ for a tire, when you can charge a mining company $80,000 for a tire?
Last time I had to order a tire, I waited a month for it to arrive.
Farmers have been seeing inflation for a lot longer than you consumers have. Farmers first started seeing input costs go up seriously in 2004.
It’s good to hear from a grownup.