Wintry mix spreads across Minnesota

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Vance Ehmke tracks global grain markets as
closely as he watches the weather forecasts, so when his winter
wheat crop was nearly double its normal size, he hoped all those
extra bushels would make up for lackluster prices amid a global
grain glut.


      Then Russia announced in August it would ban wheat exports,
demand for U.S. wheat surged and prices soared.


      Unfortunately for Ehmke and most other U.S. farmers who grow the
most popular kind of wheat - winter wheat - their crop was already
sold by the time prices skyrocketed, leaving the big profits to
speculators who buy commodities on the futures market. The timing
was better for those farmers now harvesting spring-planted wheat in
the northern Plains states.


      Ehmke, who farms some 3,200 acres of wheat near Healy in
west-central Kansas, said the price difference potentially cost him
a quarter million dollars in lost revenue.


      "People are just stunned by what is going on," Ehmke said.


      The run-up in prices has been extraordinary.


      At the Kansas City Board of Trade the cash price of hard red
winter wheat has shot up 57 percent since June 29, when rumors of
the drought-plagued Russian crop began circulating. In Minneapolis,
the price of hard red spring wheat climbed 33 percent during the
same time. In St. Louis, soft red winter wheat rose 36 percent.


      "Why didn't we see this coming?" Ehmke asked. "With the
intelligence we've got these days in markets there aren't supposed
to be any secrets."


      By far most of the wheat grown in the United States - more than
1 billion bushels this year - is winter wheat that is planted in
the fall and harvested in early summer in Kansas, Oklahoma,
Nebraska and Texas. An estimated 592 million bushels of spring
wheat is now being cut in North Dakota, South Dakota, Minnesota and
Montana.


      Hard red winter wheat is typically used to make bread, while
soft red winter wheat is favored for cookies and pastries. Spring
wheat, which has a higher protein and is a stronger wheat, is used
for making bagels and artisan breads.


      Farmers across the Great Plains now have begun seeding their
2011 winter wheat crop amid a volatile global market.


      Those like Rich Randall, who farms near Scott City in western
Kansas, said it's hard to miss out on such huge profits, but that's
how the system works.


      "It gets a little frustrating, but that is part of farming,"
Randall said as he drove into town to buy seed.


      And he noted that the higher prices bode well for the winter
wheat crop now being planted.


      Randall plans to lock in today's high prices by
forward-contracting much of his next year's crop, in effect selling
that anticipated harvest now to the local grain elevator or other
buyer for delivery at a future date.


      "Marketing is one of our biggest challenges," Randall said.
"We can handle the production end pretty easily, but the marketing
is the major challenge."


      The Russian export ban caused a "major paradigm change in
thought and perspective" in wheat markets, said Dan O'Brien, an
agricultural economist at Kansas State University.


      The cash price at Kansas City of hard red winter wheat had risen
from $3.98 a bushel on June 29 to $6.69 a bushel by the time the
World Agricultural Outlook Board released on Sept. 10 its estimate
that global wheat supplies were plentiful enough to offset the
Russian shortage. Prices have remained volatile as the market
reacts whenever it rains in Russia. By Tuesday they ranged between
$6.21 and $6.26 per bushel.


      Fueling even more uncertainty were news reports in September
quoting Russian President Dmitry Medvedev saying Russia could lift
its ban on grain exports later this year when the final harvest
figures come in.


      Some commodity traders are skeptical Russia will lift its export
ban until the country has a better idea of the size of its 2011
crop.


      "You can't tell what the Russians are going to do until they do
it - no matter what they say," Ehmke said.

      Whatever the price, consumers are unlikely to notice much
difference when they buy bread.


      That is because a bushel of wheat yields about 42 pounds of
flour - enough flour to make 73 loaves of bread. That means every
dollar increase in the price of a bushel of wheat translates into a
mere 1.4 cent increase in the price of a loaf of bread, O'Brien
said.


      Although the poor harvest in Russia helps U.S. wheat growers, no
one expects wheat prices to reach the record levels they did two
years ago when the world was down to almost a 60-day supply of
wheat, said Aaron Harries, marketing director of the industry trade
group, Kansas Wheat.


      "We have adequate stocks of wheat here in the United States and
in the other major exporting countries to cover the shortfall that
Russia will have," Harries said.
      

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Business and Economic News

Agriculture

Most farmers' wheat was sold by the time prices skyrocketed, leaving the big profits to
speculators who buy commodities on the futures market.

Many wheat growers won't benefit from price jump

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