Higher wheat prices don’t guarantee more U.S. acres – for Aug. 30, 2010

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A few years ago, Kansas farmer and seed dealer Bob Bunck would nearly fill his warehouse with bags of wheat seed ready for fall planting. Today, only a few bags are stacked against one wall.

In this top U.S. wheat-growing state, wheat remains king of the crops. But its dominance has been sliding as many farmers shift to more-profitable corn and soybeans.

This year a spike in wheat futures prices is offering greater profit potential for farmers weary of tight margins, and players across the global food chain are calculating that U.S. farmers are well positioned to capitalize on the price rally.

But many say higher futures prices – around $7.00 a bushel for the crop that will be harvested next summer compared with much lower cash prices at $5.50 to $6.00 – are not enough to guarantee that the United States will see a significant jump in wheat acres planted this fall.

A mix of factors, from the cost of inputs to prices paid for competing crops, have to be considered.

“I don’t plan on planting any,” said Bunck, who farms 3,000 acres in northeast Kansas and cleans and sells seed to fellow farmers throughout the region. “At one point we grew a lot of wheat but wheat wasn’t profitable. Now we focus on corn and beans. That isn’t going to change.”

Planting season for the new U.S. hard red winter wheat crop is under way in Texas and farmers are preparing seedbeds in Oklahoma, but planting will not be in full swing until mid-to late September in key growing areas.

Russian drought

Drought in Russia has helped drive the rally in wheat prices.

Market analyst Dennis Gartman believes farmers will take acreage away from corn to use for wheat and capture the price gains.

“Acreage that might otherwise go to corn will go instead to wheat and beans,” Gartman said in a report to investors. “To do otherwise would be uneconomic …”

U.S. Commodities analyst Don Roose has similar ideas.

“Kansas went to over half their crop being planted to corn and beans. But if the profit is there they will flex back,” Roose said.

Admittedly, wheat acreage could easily be higher than last year when poor weather limited plantings. A little more than 54 million acres of U.S. farmland were seeded with wheat for the 2010 crop, down from 59.1 million a year earlier and 63.2 million for the 2008 harvest.

Twenty years ago, more than 77 million U.S. acres were planted to wheat.

Demand for U.S. wheat has already been rising because of problems with the Russian crop, and the USDA has forecast an increase of 5.4 million tonnes for U.S. wheat exports. But the USDA has downplayed fears that the world was headed for a food-supply crisis similar to the one two years ago, projecting world wheat ending stocks at 174.8 million tonnes, or 49.9 million tonnes more than in 2007/08.

The ample supplies add to questions about how long wheat prices can hold at high levels.

“Everybody is looking at the price and that might change things a little bit,” said Jay Armstrong, a farmer from Muscotah, Kansas, who grows wheat, corn and soybeans. “But you’re basically just betting on a drought and that is not the kind of thing to make a long-term decision on. Nothing cures high prices like high prices.”

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