U.S. farmers are planting wheat during a critical time, as food prices remain high because of a host of issues including widespread inflation, supply-chain snarls, droughts and Russia’s war in Ukraine.

This year’s planting season is fraught for farmers, especially in the Plains states where much of wheat grows. Producers are seeding wheat through a third straight year of drought, and weather forecasts for another La Nina phenomenon — the counterpart to El Nino — means dry conditions are likely to stay.

On Monday, benchmark wheat prices spiked to a two-week high of $9.42 a bushel as Russia bombed several Ukrainian cities, including the capital of Kyiv, in retaliation for Saturday’s destruction of a bridge to Crimea. All of this underscores just how volatile prices are.

The government will release September figures for food and other costs in its Consumer Price Index report Thursday. In its previous release for August, food was one of the biggest contributions to inflation — the index for that category surged 11.4% over 12 months, the biggest gain since 1979.

Wheat prices spiked to an all-time high of around $12.75/bushel in the early weeks of Russia’s invasion of Ukraine, then fell 42% from those highs as the U.S. harvest rolled in, Ukraine exported some grain and recession fears weighed on wheat values.

Since late summer into early fall, prices rose about 20% from lows, in part after the U.S. Department of Agriculture acknowledged this year’s drought-decimated harvest, cutting both yield and harvested acres.

U.S. farmers are about 40% done seeding the winter wheat crop, on track for their usual pace. Wheat prices around $9.50/bushel are well above the 14-year average price of $5.62 for the year ending 2020, according to the University of Illinois.

Whether farmers benefit from those prices is an open question. Sterling Smith, director of agriculture research at AgriSompo North America, said the 2022 crop, whether it was wheat, corn or soybeans, was the most expensive harvest ever because of high prices for inputs such as diesel, natural gas and fertilizer.

It’s going to be another expensive year as energy prices and crop inputs stay costly. The Mosaic Co. MOS said in its August earnings report that nutrient prices are elevated and reduced global supplies for fertilizer ingredients means some demand goes unfulfilled. Other fertilizer companies including CF Industries CF, Nutrien NTR and CVR Partners UAN have echoed similar comments.

Smith said farmers are focusing on their most productive lands and irrigated fields, but with farming, Mother Nature plays a role.

“It’s luck of the draw. If your bad acres that didn’t get fertilized get the rain, and your good acres that got fertilized don’t get the rain, suddenly, you have a problem,” he said.

Kathy Kriskey, a commodity exchange traded fund specialist at Invesco, said even with a drought-cut crop, there is enough wheat; the issue is getting it to the right places.

Logistics remain snarled because of the supply-chain issues dating back to the beginning of Covid. A strong U.S. dollar makes U.S. exports more expensive for foreign buyers, while low water levels on the Mississippi River limits how much can be moved. With some of last year’s crops still binned and new supplies of wheat, corn and soybeans coming, those new crops may pile up outside.

The drought affected quality, Smith said, and any crops stored unprotected from weather will see further declines in quality. That will impact food producers ranging from General Mills GIS and Kellogg K to Mondelez MDLZ to Hostess Brands TWNK that may have certain specifications to make their products taste familiar to consumers. That could make high-quality crops very expensive and prices for ordinary or poor-quality crops discounted, he added.

“Food companies are going to have challenges here. This is not good news for food inflation. You could have a situation where grain prices could potentially come down. But food prices are going go up because of quality issues,” he said.

Ukraine exported some grain this summer under the Black Sea Grain Initiative, a deal between Russia and Ukraine, which helped cap wheat prices, but how much those farmers can plant for next year’s harvest is open to debate, said Jerry Gidel, an analyst at Midland Research.

Recently, Moscow claimed to have annexed Luhansk, Donetsk, Zaporizhia and Kherson, and a USDA map shows the four regions represent 21% of Ukraine’s wheat-producing areas.

“The big elephant in the room is the Ukrainian food corridor, with our friend Mr. Putin running the show and threatening to use nuclear warheads and declaring areas his property,” Gidel said.

Wheat prices for all three exchanges — Chicago Board of Trade, Kansas City and Minneapolis — spiked on the pickup in the Russian-Ukraine war over the weekend. However, Kriskey said as the benchmark, the CBOT is where market speculators express their views on the situation in Ukraine.

“People think Ukraine equals wheat. … Even though they’re trading a U.S. contract, they’re basically (saying) this is where I want to put my money,” she said.

The Invesco DB Agriculture ETF DBA has a 12.5% weighting to wheat, which tracks both CBOT and Kansas City wheat futures. The Teucrium Wheat ETF WEAT follows CBOT wheat futures.

Besides droughts in the U.S. and Europe hampering production, Argentina’s crop is also being hit by La Nina-induced dryness, Gidel said. Canada and Australia have ample crops that help global supplies. Russia also had a hefty harvest, but its exports were limited to countries it is friendly with, such as Syria and other parts of the Mideast, he added.

Kriskey said the Black Sea Grain Initiative expires in late November, and she added that Putin has complained that much of that wheat is going to the EU, with only one-third going to low-income countries.

Gidel said wheat often is under the radar because it’s grown and available everywhere. But he said the Ukraine situation remains a powder keg, especially if Russia decides to shut off Ukrainian exports, which could lift futures prices. “Wheat can be an $8 item, or a $12 item,” he said.

That could spell trouble for consumers again. “Food costs in in the bread aisle and the cereal aisle. This fall and winter could be quite interesting,” Gidel said.

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