Tuesday, December 02, 2008

Are the Wheels Falling Off

This morning as I was searching around some of the websites that I like to read for good blogging fodder I found a November, 21 blog post by Allan Nation (on his blog). The post was titled, "A Wylie Coyote Moment In the Wheat Belt" and you can read it by taking the link above and scrolling down a little bit. The thrust of the article is about the falling wheat prices, but Mr. Nation can't resist a little prophecy about the corn market. Here are a few especially interesting quotes from the post.
"Currently, the input costs to grow this winter’s wheat crop are estimated to be around $6.00 a bushel, but elevators are only offering $3.17 for it. This apparent sure loss has not slowed America’s wheat farmers as they start to plant this year’s crop."

"According to one Oklahoma banker, growing this year’s crop will probably make them poor. He estimates that half of the net worth of his current farmer customers will be lost in 2009."

"Watch for a Farm Bailout bill in 2010."
Since in am ignorant in the growing of wheat I was wondering if someone could enlighten me on the "hows and whys" of wheat costing $6.00 a bushel of input costs. I'm not disagreeing with the number, I just don't know what goes into a wheat crop like I do corn or soybeans. But, one thing is for sure, I do understand why the wheat farmers are continuing to plant wheat even when the prices are so low ... because that is what they have been told to do and that is the only agricultural system they know.

I assume that many of the wheat farms are large scale mono-crop type operations and they probably are tooled up enough to just switch operations on the fly. Because of that they just plant wheat and some may even plant more ... because that is what our government wants.

As for corn having the same fate and the 2010 Farm Bailout Bill ... Well, I'm not sure what will happen with corn, but I do know that corn closed at $3.32 yesterday which is darn close to the break even point. As for a farm bailout ... what more could they do that they don't already do in the 2008 Food Stamp ...err... Farm Bill?

21 comments:

Steven said...

The guy that farms our ground has always rotated corn, then wheat, then soybeans... for the first time that I've ever seen, he is not planting wheat in his rotation this year. He said "it's not a money crop anymore". We always make our share on it, but I guess it's not worth it to him to pay his employees to do it. So unless he's going to plant all corn, I don't know what will happen to that wheat check we always got. If it's just gone, and not replaced, maybe the 10 acres we rent for pasture will get cheaper. :-)

Yeoman said...

Wheat has always been subject to massive swings. It'll make the same farmer rich and destitute, depending upon the times, on the same plot of land.

The hows and whys of the price I don't know. However, one thing about it is that it's a rare crop in that several nations have major impacts on the price, about which the local farmer can do nothing. The US, Canada, Argentina, Australia, and Russia, all grow lots of wheat. They all compete against each other. In any year in which prices are really good, it usually means that one of those nations is having a crop failure, or can't get its crop to market. The next year they usually can.

The boom market of the teens was caused by Russia being unable to market its crop, due to World War One and then the Russian Civil War. In turn, when the Russian wheat returned to the market in the 20s, the price collapsed. In the 70s, the Soviet Union had a major wheat failure, which caused a boom in prices internationally, which made a lot of American farmers rich, briefly.

On the price of wheat, I'd guess the price of petrochemicals and diesel would have a major impact. And as long as all the producing nations are producing it, the price will be cheap. To add to that, Russian crops are returning to international trade for the first time since 1990, so the price of stuff like wheat will continue to be low.

On the rotation of the crops, one thing that at least Argentina does is to rotate cattle on to wheat ground and rest it.

Ethan Book said...

Yeoman - It is interesting you mention Argentina and there good crop rotations, because the post right before the one that I am writing about is how Argentinian farmers have gone away from that system this year to do corn on corn ... and now they are hurting because they are having to use more inputs (specifically N) than they are used to.

Rich said...

We grow wheat and I don't know how he came up with his numbers. $6.00/bu to plant wheat is nonsense, and on the day he posted wheat was selling for $3.00 it was selling for closer to $5.

For dual purpose wheat (grazing and grain) it takes about 80-90lbs of seed per acre(1.5 bu) which cost about $15 this fall, about $35 for fertilizer, fuel cost around $15-20/acre (when fuel was $3.50/gal), if it was sprayed for weed control it would cost about $15-25/acre.

And, you also have to factor in the "huge" amount of money that we have been generously been given by the government in the farm bill.

So it would cost between $65 and $100 per acre (for about a 40/bu yield and winter grazing) depending on how it was managed. Only if someone applied every available seed treatment, high amounts of fertilizer, fungicides, herbicides, and the newest whiz-bang type of seed could they start to approach the $6.00/bu number. Even then, I doubt it would cost $360/acre to plant a field with a 60/bu/acre potential.

Even if wheat plummeted to historic lows (within reason) we still are able to graze it throughout the winter and always have the option to graze it out in the spring or even bale it into hay. Even if you (knock on wood) just broke even, you have to consider the grazing portion of wheat planting(of course, I don't know about the grain-only wheat growers)

And contrary to common belief, nobody told us to plant wheat this fall and it isn't the only thing we know how to do.

cowsandplows said...

Rich, I'm not sure where you are, but I don't see mention of irrigation costs in your figures. Many areas in the Plains rely on water from underground aquifers to supplement inadequate rain fall. Water rights payments, as well as fuel and maintenance on pumping and spraying equipment would raise your estimate, though I can't personally say to what amount.

Rich said...

cowsandplows -

I'm located in Oklahoma, most of the wheat I am familiar with is dryland winter wheat that allows for both cattle grazing and grain production.

But even if you added in the cost of irrigation (and equipment) it still probably wouldn't reach the $6.00/bu range.

If you had irrigated cropland, you would probably be getting much higher yields of 60-90bu wheat, and I still doubt if it would cost $360-$540 an acre for input costs.

Ethan Book said...

Rich,

Sorry to imply that you don't know how to do any other things. Obviously most farmers if they aren't diversified (which is mainly what I was speaking about) know how to do plenty of other things ... 5,000 times more the I. What I was getting at is that if your a large scale wheat farmer pretty much only growing wheat or what ever, it is difficult to change midstream and do something totally different.

I do believe though, that even though people aren't actively telling farmers to plant wheat that in a sense folks are being "told" because of the system of markets and such that we have in place.

For example, here in Iowa if you decided you wanted to grow ... whatever ... instead of corn or beans you would have a tough time finding an easy market for it. The coop isn't going to take peanuts (or whatever).

That is just a few more of my thoughts

Steven said...

Is it not common in other parts of the country to rotate by planting corn one year, wheat over the winter, and then soybeans after the wheat is harvested? That is pretty much the only thing anyone does around here, if they have row crops.

Yeoman said...

"I do believe though, that even though people aren't actively telling farmers to plant wheat that in a sense folks are being "told" because of the system of markets and such that we have in place."

In a way people are told, if not specifically so, due to the existing subsidy system, although I'm not really familiar with that.

People were encouraged to grow wheat from time to time as a matter of national policy, but that hasn't occurred in quite some time. None the less, making a change in agriculture is enormously difficult, and tends to only occur in times of crisis, as farmers rarely work in concert with one another, and get used to doing something a single way. Those who criticize that are often subject to criticism themselves, and those are in a certain sort of agricultural rut rarely fully appreciate how they got there, or where the various incentives that keep them doing it are.

I'm not criticizing growing wheat, by the way. And I'm neither endorsing or criticizing the figures used in the analysis. It is fairly clear, however, that wheat, and corn, are subject to some big swings in the market, and that the crops are not always profitable. Sometimes they're fantastically profitable.

One added thing to consider is that the chemicals and petroleum required to grow wheat and corn the current way, according to some, require more calories of energy than they derive. I'm not sure if that's true, but the figure seems solid. The author of The Omnivores Dilemma pointed that out in his recent article, I think.

I'll frankly note that I didn't know that anyone grazed wheat fields in the US. There isn't much of that done here, although I've seen a little of that. Seems like a good ideal.

By the way, does anyone know what a bushel of wheat equates to in terms of loaves of bred? It's not relevant to this discussion, I'm just curious.

Yeoman said...

"Is it not common in other parts of the country to rotate by planting corn one year, wheat over the winter, and then soybeans after the wheat is harvested? That is pretty much the only thing anyone does around here, if they have row crops."

Not here.

Here, those who plant wheat, in the parts of the state where it is planted, plant only wheat. They plant it in alternating strips, so as to not have to plant the same ground every year.

Yeoman said...

"Yeoman - It is interesting you mention Argentina and there good crop rotations, because the post right before the one that I am writing about is how Argentinian farmers have gone away from that system this year to do corn on corn ... and now they are hurting because they are having to use more inputs (specifically N) than they are used to."

That's discouraging.

Rich said...

No offense taken, but I think you are right about finding markets for your product.

My Grandfather used to grow barley, oats, and a little corn and sell a portion of it to the local grain elevator which would grind and blend it for feed for the local farms.

But the local elevator (the one that is still left) doesn't take barley anymore, and therefore, nobody grows barley or oats because there supposedly isn't anybody to buy it locally.

My thinking is that I would first find a buyer or market for something like barley, oats, OP corn, etc., then I could start rotating it with the wheat. Growing something that isn't tied as close to the internationally traded commodities market would help avoid the boom and bust of wheat, corn, and soybeans.

Rich said...

Yeoman - I might be mistaken but I think that Oklahoma might be unique in being able to utilize wheat as dual purpose grazing and grain production. It is something about the dormancy period being relatively short due to the weather.

Of course, it might simply be that Oklahoma State University has historically done more local promotion of the practice than other states have.

And, I think that a bushel of wheat makes about 50-60 loaves of bread.

Steven said...

So, here, in one year of the rotation a farmer harvest wheat pretty early and then plants soybeans. Where wheat is the only crop, what is done with the land after it is harvested? Is that not winter wheat and therefore grown through the warm months?

Yeoman said...

"Where wheat is the only crop, what is done with the land after it is harvested? Is that not winter wheat and therefore grown through the warm months?"

Yes. It's planted in the Fall and harvested some time the following summer. Here, nothing is done with the ground after it's harvested, prior to the fall planting.

I should note that there's no wheat farming, and very little farming of any kind, right where I am. There are a few wheat fields that are CRP ground. I've seen those fields grazed when the drought condition exceptions are in force.

Yeoman said...

"And, I think that a bushel of wheat makes about 50-60 loaves of bread."

Thanks. I've wondered about that for some time.

Rich said...

"...Where wheat is the only crop, what is done with the land after it is harvested?..."

There are about as many ways of planting wheat as there are farms.

Commonly, in continuous wheat the field would be disced, plowed, or chiseled after harvest to both bury the straw (and help control disease) and start creating a seedbed. Depending on the field, it might be cultivated a few more times during the summer to control any weeds and continue to build a seedbed. Then the wheat is drilled sometime between September and November depending on the weather and if it is going to be grazed.

Another option would be no-till, where the stubble would be sprayed with something like RoundUp and a herbicide (depending on the weeds), then the wheat would be drilled into the stubble.

Or, the wheat stubble could be planted with soybeans either after tillage or no-till), then immediately followed with wheat in the fall. Grazing might be a problem because wheat planting happens later.

Or, something like grain sorghum can be planted after the wheat (possibly grazing the sorghum stubble over the winter), followed with sorghum (or oats) the next spring then wheat again the following fall.

sugarcreekfarm said...

"For example, here in Iowa if you decided you wanted to grow ... whatever ... instead of corn or beans you would have a tough time finding an easy market for it. The coop isn't going to take peanuts (or whatever)."

Not only can you not find a market for it, you will be penalized for growing it if you plant on "base" acres. See this article.

cowsandplows said...

Rich, I wasn't trying to disparage you or your argument. Perhaps I should have stayed out of the conversation, as what little I know about wheat production comes from conversations with friends who live in Kansas that wheat circles the size of my family's century farm.

Rich said...

cowsandplows - I'm not sure what you are referring to, because you raised a valid point about the costs associated with growing wheat.

I can only speak from my viewpoint and experiences, and you have as much right to speak from your experiences as I do.

Don't hesitate in engaging in the discussion, I would think that more viewpoints, experiences, and questions would the better.

Ethan Book said...

Everyone ... Thanks so much for the great discussion. I agree with Rich, as many viewpoints and experience we can share the better. It makes us all think.

And, thanks for that great link Sugar Creek.

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