Early harvest giving farmers reason to smile

There is a golden glow hovering over many Manitoba farms these days, and it's not simply due to the sunny skies above or the ripening fields surrounding them.

Much of the winter wheat crop, which is sown in the fall, is now in the bin and the early reports suggest it's a bumper. Yields were in the 80 to 90 bushels-per-acre range, and much of it will make milling quality. With a quarter-section (160 acres) of this stuff fetching prices that are at an uncharacteristic high of about $8 a bushel, well, you'd be smiling too.

It's important to remember there are lots of years when the harvest isn't so sweet. And that's not all profit, of course. Provincial government estimates put the total operating and fixed cost of producing an acre of wheat at around $300.

Wheat isn't even considered a high-value crop on most farms anymore. It's relegated to the status of a "rotation crop," grown to break up the disease, weed and pest cycles between plantings of the real money-makers such as canola, sunflowers or soybeans. How those other crops will fill during this bout of hot, dry weather remains to be seen.

But the rare combination of good prices and good yields is giving farmers in these early stages of harvest promise of a healthy margin indeed.

However, unless it has been sold or a price locked in, grain in the bin is more like shares in the stock market than money in the bank. It's only worth what the market is paying when you cash in.

Farmers, like many stock market investors, are notorious for refusing to sell into a rising market for fear of missing out if prices go even higher. What happens instead, over and over, is they hold out until the prices peak and they rush in en masse to sell, which only escalates the downward slide.

It's worth noting that in the last big run-up in prices in 2008-2009, most farmers who opted out of the Canadian Wheat Board price pools netted less than the farmers who stayed with the single desk. Early in the year, prices looked like they couldn't go higher, so some farmers locked them in. But prices continued to rise through the year.

With prices already at historic highs this year, it remains to be seen how many will play the waiting game. The big difference with the end of the CWB single desk as of Aug. 1 is that instead of opting out of the pools, which offer a price average of sales made through the marketing period, farmers will now have the option of opting in. But again, history suggests farmers are reluctant to settle for average when there's potential of catching the peak.

Given wheat isn't a priority crop on most Manitoba farms anymore, and considering the U.S. drought-induced run-up in commodity prices, there is unlikely to be much weeping and wailing at the farm gate as the single desk dissolves next week.

Where you are starting to hear some rumblings is among those on the wrong side of the supply-and-demand fundamentals in this market.

While U.S. corn growers will suffer lost yields, they will receive compensation from farm programs. Livestock producers, who count on scant and increasingly expensive feed grains and parched pastures, aren't so lucky.

Their only option is to sell off stock and reduce production, which will eventually result in higher meat prices. The U.S. cattle herd is also at historic lows.

As well, the drought, which now encompasses nearly two-thirds of the United States, continues to spread, coinciding with droughts in Russia and now India.

The United States is the world's largest corn producer and exporter, so it is the price trendsetter for all cereals, including wheat and rice.

With production reduced by as much as 25 per cent, and stocks expected to dip to a six-year low, the stage is set for the same run-up in world food prices seen in 2008.

Federal officials in the United States this week predicted food prices will rise faster than the rate of inflation, jumping 2.5 to 3.5 per cent in 2012 and another three to four per cent in 2013.

That hits those of us living in wealthier countries in the pocketbook, but for people living in parts of the world where food access is less secure, it hits right where it hurts. As recent history shows, hungry people start looking to their governments for answers and aren't immune to taking things into their own hands if they don't like what they hear.

Here we go again.

Laura Rance is editor of the Manitoba Co-operator. She can be reached at 792-4382 or by email: laura@fbcpublishing.com

Republished from the Winnipeg Free Press print edition July 28, 2012 B6