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...