Low crop prices cause headaches for farmers

An image that has been circulating on social media pages gives an all-too-true depiction of the blight of the modern farmer.

Crop photo (CMYK)

By BRYCE MARTIN | N.D. Group Editor | bmartin@countrymedia.net

An image that has been circulating on social media pages gives an all-too-true depiction of the blight of the modern farmer.

Written above a photo of a truckload of wheat reads, “FYI: This truckload of wheat will make 42,000 loaves of bread worth $84,000.” Under that, a disturbing truth, “The farmer gets $5,200 for it.”

That’s in part due to the low price of wheat as a commodity. The cause of that, also in part, is supply and demand.

Those not in tune with the agriculture industry might not realize crop prices are set in an arena similar to the nation’s stock market. Instead of stocks and bonds, however, they’re trading commodities; in this case it’s crops. A commodity is a raw material or primary agricultural product that can be bought and sold. These commodities are traded constantly on commodity exchanges around the world such as the Chicago Mercantile Exchange, Winnipeg Commodities Exchange (WCE) and the New York Mercantile Exchange (NYMEX).

The Chicago Board of Trade (CBOT), the nation’s oldest futures and options exchange, saw most-active wheat contract rise nearly 2 percent on Tuesday, to $4.76 a bushel. According to various reports, that’s due to a lower US Dollar Index—meaning a weakening in the worth of the US dollar measured against various other currencies.

But a supply-demand report from the USDA that helps forecast crop prices, to be released today, will show what’s most at stake.

Nationally, wheat has experienced a dive in prices since crop commodities reached highs in 2012 and 2013.

Because they’re traded on exchanges, crop prices aren’t set by a single person or entity. On the exchanges, commodities are traded via futures contracts, which force the holder to buy or sell a commodity at a predetermined price on a future delivery date.

“We are seeing a bit of support for wheat around five-year low levels as there is some end-user demand,” Paul Deane, senior agricultural economist at ANZ Bank of New Zealand, told Reuters this week.

If the USDA’s report at the end of this week confirms high corn yields, there could be further fund liquidations and if corn is sold off, wheat will face pressure, according to Deane.

A commodities futures price is determined primarily by the supply and demand for the commodity in the market. But there are also many economic factors that will have an effect on the price of a commodity.

Weekly data from the National Agricultural Statistics Service showed the spring wheat harvest to be about 94 percent complete; North Dakota—the top wheat producer in the nation—has about 7 percent left and Montana has about 8 percent left to go.

“Yes, it is possible to see high grain prices again, but it likely will not happen this year,” Frayne Olson, crops economist with the NDSU Agribusiness and Applied Economics Department, wrote in a recent column. “That doesn’t mean that current crop prices can’t improve, but they won’t reach the lofty levels we saw in 2012-13 for some time.”

According to Olson, the price volatility and price levels seen in crop futures since 2007 are the result of three key interconnected conditions: the expansion of corn ethanol, the growth in Chinese soybean imports and historically tight U.S. grain ending stocks.

As long as crop production continues to grow at about the same pace as consumption, crop inventories are large enough to buffer short-term supply chain disruptions, Olson wrote.

Olson’s view is that the next several years will be a blend of the conditions experienced in the 1980s, meaning further hardships and uncertainty, and those seen in the past several years.

The “typical” market will result in relatively low, stable crop prices and tight farm-level profit margins, according to Olson. But farmers will have periods of rapid price rallies and better profit opportunities.

Unfortunately, as Olson noted, the timing of these price rallies are impossible to predict and likely will not last for a long time.

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