Worldwide shortages spur record wheat prices
- Mardi Ford
Last January, Trent Sauder, director of commodity marketing for Advanced Trading Inc. out of Illinois was a featured speaker at the annual cattlemen's workshop in La Grande.
While addressing the global commodity market with respect to biofuels and feed prices, he mentioned that there was less than a one-month global supply of wheat on hand.
In other words, at that moment, if no more wheat was ever planted, grown or harvested, in a month the world's wheat stock would be toast.
Evidently, that is not necessarily an unusual circumstance because, except for about one month out of the year, wheat is always being harvested somewhere in the world.
For decades wheat buyers have counted on the fact they can always buy wheat when they need it from someone. Grain marketing specialist Dan Steiner of Pendleton Grain Growers, calls it the "just in time, always enough wheat" mentality that has pervaded the global mindset for decades.
Last January, when Sauder made his comment, Portland was pricing soft white wheat at $4.96 a bushel. A darn good price, too, considering the average for soft white wheat had only hit $5 a bushel once in the previous 36 years.
Local wheat farmers couldn't have been happier last January. Or so they thought.
Since then, wheat market prices in Portland and Chicago have soared to unprecedented highs. The Portland market for soft white wheat has hovered around $10 a bushel since early October.
"Never in my life did I think I'd see $10 a bushel wheat," Steiner says a sentiment echoed by many.
And after decades of a stagnant wheat market, how are local farmers adapting to the change?
In response to the volatility of the current market, the Oregon Wheat Growers League began holding monthly educational meetings at 10 county Extension offices around the state, including Union and Wallowa counties. These meetings are always held at 7 a.m. the second Thursday of the month and anyone is welcome.
Participants learn the fundamentals of commodity marketing, how to identify current market trends and opportunities and how to analyze and apply marketing techniques and strategies.
In addition, in September Union County Extension agent Darrin Walenta put together a wheat marketing workshop that included Steiner and John Sperl, another grain marketing specialist with PGG.
Grain buyer Russ Graham, Island City Grain Company, was also at the workshop. Graham has been in the business for 24 years, taking over for his father who started the company. He says that understanding the global picture is crucial to understanding the grain market.
Take the drought in Australia for example.
Graham says Australia just happens to be the Pacific Northwest's biggest competitor of soft white wheat exports. They're also the first to harvest wheat in the global harvest cycle.
Graham says the Aussies' average harvest is about 35 million metric tons. (A metric ton is 2,200 pounds.) But for 2006, they only harvested 7 mmt. Even with a reported carryover from the prior years of 5 to 7 mmt, Australia still fell way short of an average harvest.
This year Australia is still facing a drought with no carryover.
"The projected figure for the 2007 harvest is somewhere around 12 mmt," said Graham. "With a domestic use of about 7 mmt, Australia's exports will be very insignificant."
After Australia, Steiner says Argentina is the next big player in the global harvest cycle.
"And Argentina's wheat has already been marketed," he says.
Next come Pakistan and India, both of which are already buying wheat, so that speaks volumes for their harvest. Then comes Texas in the U.S. But due to fall flooding, Steiner says, the Texas wheat crops are not even in the ground yet.
All of which explains why Pacific Northwest grain growers are making some money right now.
Steiner says a lot of the countries who have followed the model of "just in time" wheat buying are caught with no wheat stock and sky-high market prices.
"A lot of people are willing to pay whatever they have to for wheat right now. The Japanese, for example, like free-market access and are willing to pay for it. That mindset is driving prices up," Steiner says.
Instant technology has also added to an increasingly fluid market. Billions of dollars change hands in seconds with complex computerized trading. Steiner says that liquidity has also meant increased volatility.
"Farmers need a new mindset. We need to think outside the state, to the U.S. and global markets and how things like crude oil prices and the recent sub-prime debacle impact the market," he says.
Steiner explains that it is a very small number of international corporations that hold the lion's share of many commodities.
"Rather than go bankrupt, these companies will pull hundreds of billions of dollars out of commodity markets to offset losses without even batting an eye," he says.
Although Steiner and Graham hesitate to predict the future of wheat prices, both agree there is probably another good year for Pacific Northwest wheat farmers ahead. Steiner says maybe even two.
"You tell me what the weather's going to do and I'll tell you what the grain market is going to do," he jokes.
But with the wheat stocks increasingly tight, and a less than enthusiastic ethanol market, Steiner does make one prediction.
"Corn will have to buy acres next year," he says.
That's certainly something to keep an eye on.