Lofty Matters

Across America, turmoil in the world wheat markets has sent prices of anything made with flour soaring upward, producing alarm from consumers. Underneath this food inflation are changes that are changing the U.S. agriculture industry and making a return to low wheat prices unlikely.

In the North Dakota country that traditionally grows the high-quality wheats many farmers are cutting back on growing this wheat to instead concentrate on the more profitable, less disease-prone crops like corn and soybeans. These crops are allocated largely for ethanol refineries and Asian consumers.

Thirty years ago over half of these farms were growing wheat. This year only one in 10 will be, and 40 percent will go to soybeans. Farmers are considering investing in a $180 million plant that will turn the beans into animal feed and cooking oil. Both of these products are in strong demand in China right now.

Wheat’s demise, hardly noticed when it was cheap, has been long in coming. It is still a symbol of American abundance (it is engraved on our currency and sung in patriotic songs) These days our nation’s amber waves of grain are being increasingly pushed aside in favor of other crops. The United States…known as the “breadbasket of the world” can boast about alleviating hunger and famine since World War I. Currently we supply only a quarter of the world wheat exports.

U.S. farmers are expected to plant approximately 64 million acres of wheat this year. This figure is down from a high of 88 million in 1981. In Kansas the wheat acreage has declined by 33 % since the mid 1980s. Nationwide there is less wheat in storage bins than at any time since World War II. There is only about enough to feed the world for four days. This is occuring as developing countries having some of the poorest populations are quickly increasing their wheat imports.

Science, weather, economics and farm policy have all converged to play a part in these changes.

U.S. wheat yields per acre have only increased marginally in twenty years. This is partly because commercial seed companies are abandoning these seed varieties, preferring to focus on the more profitable corn and soybeans. The warming climate and the recent availability of new seed varieties designed for cold, dry conditions have extended the corn belt north and west.

In 1996, Congress passed strong incentives for these changes by allowing wheat growers to switch to other crops and still collect government subsidies. The result is that farmers received federal wheat payments last year on 15 million acres more than they planted.

Countries that historically have counted on the United States to have inexpensive wheat on hand are having to come to grips with this new reality.

A Run on American Grain

The U.S. government stopped holding large stocks of wheat back in the 80s. However, the United States (almost the only significant wheat producer) still allows countries to shop here even when others have shut off exports.

This free-trade policy has resulted in a run on the 2007 U.S. wheat crop. Foreign buyers are taking advantage of the favorable dollar exchange rate to stock up.

The current situation started last summer when poor European harvests occurred and then there was a disappointing winter wheat crop in the southern Great Plains. U.S. prices moved above $7 a bushel, then they passed $10 after Australia harvested another drought-damaged crop in December. As the supplies of wheat ran low, foreign countries started to grab the limited stocks of premium wheat from the northern plains.

The reverberations were felt far and wide across the world wheat markets.

A Return to Wheat?

Will 2008’s high prices lure the farmers back to wheat? That is debatable.

The ethanol boom is certainly providing a strong incentive to keep farmers growing corn. New huge distilleries will need corn from an area about the size of Rhode Island. This corn will come at the expense of traditional crops like wheat and sugar beets.

Wheat’s biggest problem is its susceptibility to disease. This has turned many farmers against it. In the 1990s a fusarium head blight (commonly called “scab”) devastated many wheat crops. After this many farmers switched to new varieties of hybrid corn and GMO soybeans.

These seeds are protected by patents and licensing agreements (Monsanto’s monopoly) and this requires the farmers to buy new seeds each year.

Research might be successful in solving many of wheat’s problems but commercial companies aren’t very interested in pursuing this. In 2004 Monsanto (the world’s largest seed company) discontinued its research on a wheat plant that had been genetically modified to tolerate chemicals.

The milling industry has been resisting the use of such genetically modified wheats. This means that wheat plants have to be improved the old-fashioned way and this is an expensive and time-consuming process.

There is still no assurance that farmers will buy the seed year after year. The nature of the wheat plant is unusually complex. Unlike hybrid corn, which becomes unproductive after one year, seeds from improved wheat varieties can be saved and replanted for several years without a significant loss of yield.

Syngenta (a Swiss agro-chemical company) is still working on developing an improved wheat. It’s difficult to make this a financial sound pursuit, however.

Most wheat research is now occurring in public colleges with limited amounts of federal and state funds.