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Higher prices may give wheat the respect it really deservesBy Doug Rich
Wands represented domestic market in a panel discussion during the Wheat Quality Council annual meeting in Kansas City, Mo. Representatives from the export market, wheat breeders, and producers discussed the effect of higher wheat prices on their segment of the wheat industry. "Since May of 2007 we have seen dramatic increases in prices for all of our ingredients," Wands said. These increases included a 20 percent jump in the price of high fructose corn, a 71 percent jump in the cost of soybean oil and a doubling in the price of gluten. Wands said the price of flour jumped up 138 percent. "What these commodity prices have done to U.S. bakers is make them look at all of their blends to see if every ingredient is truly necessary or can we do something different without sacrificing quality," Wands said. "It forces us to look for cost savings wherever we can find them." Wands said U.S. bakers have faced a myriad of problems this year, not just price. Some ingredients are not only expensive but hard to find this year. He said they have gone to Europe to find some of these products. "It will be a challenge for us," Wands said. Export Markets Global export markets are responding to higher wheat prices by buying early and often, according to Ian Flagg, U.S. Wheat Associates. "It has been an incredibly difficult year for importers of wheat with record wheat prices, record price volatility, and record ocean freight rates on key routes to Japan and Europe," Flagg said. Restricted origins for wheat purchases has made the market even tighter. Countries that normally export wheat have decided not to export wheat this year, while others have increased their export tariffs. India and Pakistan have stopped exports of their domestic wheat and Argentina and Russia have increased their export tariffs. "All of our major customers are buying more wheat this year than last year," Flagg said. "Japan is the top buyer of U.S. wheat, most of the time, and they are ahead of last year's purchases." Sales are up in nearly every class of wheat. Hard red wheat is at 94 percent of the U.S. Department of Agriculture export sales forecast and other classes have reached 96 percent of projected sales. "One element that has kept exports pretty strong, even with high prices, is the weak U.S. dollar," Flagg said. Over the last 20 years, global harvested wheat acreage has been declining but, at the same time, global wheat production has gone up. However, production has not gone up enough to keep up with global consumption. "Consumption has risen 1 percent per year on average for the last 20 years," Flagg said. "Use has exceeded production seven of the last 10 years. The dramatic decline in global ending stocks has had a significant impact on the price of wheat." Flagg said world wheat production is projected to increase nearly 7 percent in 2008. Given the current ending stocks situation, it will still be a very tight market going into 2009. "Prices will moderate but stay well above average," Flagg said. Wheat Breeding Rollie Sears, AgriPro wheat breeder, said wheat breeding is a long term process and commodity prices are short term. "Wheat breeders are thinking five to ten years out," Sears said. "We have not penciled in the exact impact of higher wheat prices." The most immediate impact has been the increase in land rental rates. Rental rates for land for research plots has gone from $250 an acre to $600 an acre. Wheat breeders are considering increased seed royalty feeds. Sears said these have been fairly constant for the last 10 years at one to two cents per pound. High wheat prices could lead to faster adopting of newer wheat varieties and increased use of certified seed, according to Sears. "We will see a jump in emphasis on yield in wheat breeding where we have been working on disease for many years," Sears said. Overall, Sears would like to see wheat begin to get the respect it deserves. "Wheat has assumed the role of a low input crop here and around the world," Sears said. "We have operated on a mantra of break even with wheat, instead of make money with wheat. With higher prices for wheat, I think we can start thinking of wheat as food crop and start thinking about ways to make money with wheat." Producers Daren Coppock, Chief Executive Officer of the National Association of Wheat Growers (NAWG), said most producers are walking around with big smiles on their faces. "Unless they forward contracted their wheat at $4 and had a short crop and had to buy it back at $8 to fill the contract," he said. "Generally, producers are very happy but there is another side to the story." Coppock said input costs are the other side of the story. Since the 2002 farm bill was passed, input costs have tripled for producers. During that same time wheat prices have doubled. "What happens when somebody in the world grows a big wheat crop?" Coppock asked. "What happens if Australia puts out 20 million tons instead of 10? Wheat drops to $4 or $5 a bushel but input costs stay up. The farmer is in for a nasty squeeze when that happens." Coppock is concerned about the future competitiveness of wheat as a crop. As other grain crops continue to take advantage of biotechnology to improve traits, producers will move away from wheat. "At NAWG, our first initiative is to increase wheat yields by 20 percent by 2018," Coppock said. "We will need biotechnology to get this done. That is a given." There will need to be some cultural changes in wheat production to get this done. Saving seed is one practice that may need to be changed. Rollie Sears said the higher price of wheat may finally bring genetically modified seed production and hybrid wheat back to the table for discussion. "We need to recruit more investment into wheat," Coppock said. "The number of companies investing in wheat has declined. We need to attract the best scientific people into wheat research." "We are about advancing biotechnology any way we can over the next few years," Coppock said. "Unless we have two to three really good crop years around the world, we will have extreme price volatility like we have now--if not even worse," Wands said. Doug Rich can be reached by phone at 785-749-5304 or by e-mail at richhpj@aol.com. 3/3/08 Date: 2/27/08
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