The tumultuous economy is hitting some Northwest wheat farmers hard. The stock market may have bounced around wildly, but volatility in wheat prices has been even worse.
Doug Young, who has tracked commodity prices for more than 30 years as an agriculture economist at Washington State University, says these are the wildest times he's ever seen. "The commodities market--wheat being a good example--has taken a real beating," he says. "We've had such wide swings in wheat prices that you could have sold wheat for anything between $15 [a bushel] and $4.70 just during 2008. That exceeds the volatility of the stock market."
A bushel of wheat is now selling for $4.50 to $5 at the farm gate—so low it's hard to make money, Young adds. The price drop comes at a time when many farmers need to pay the bank for land, fertilizer and seed. But with the tight credit market, banks are leery of waiting for wheat prices to go up again.
The current prices have been frustrating for many Northwest growers, says Michael Lowry, a grain merchandiser at Connell Grain Growers in Moses Lake, Wash. "The input costs were so high this year: fertilizer, fuel and tires," he says. "Now the guys that have wheat still to sell can't afford to sell. So they are just going to wait it out."
Lowry says wheat prices are influenced both by the wild stock market and decreasing oil prices. Corn, which is used to make ethanol, often follows the oil prices, and wheat follows corn prices, he explains. As of late November 2008, a barrel of oil was trading for around $50, which was down 66 percent from a record high of $147 last July.
Still, while wheat prices were high last summer, many farmers made money--and spent it, too. Lowry says there are lots of new tractors, combines and trucks roaming around Washington's farm country these days. "It was an amazing run," he says. "I don't think we will ever see it again. Prices were so high."
Keith Bailey, CEO of AgVentures NW in Odessa, says many farmers are hanging onto their grain by applying for nine-month federal loans. Usually by mid-autumn about 90 percent of the year's grain is marketed. But by the end of November 2008, only "about half " of the grain had been sold, he says. Bailey says many farmers didn't sign contracts, since they'd hoped to take advantage of the high prices, but by harvest time the prices plummeted.
While it's almost impossible to predict the grain market, Bailey hopes his firm has already seen the bottom. "I don't think we will recover as quickly as we fell down," he says. "You don't see anyone jumping off the top of the elevator yet."
The wheat farmers who make it through this year, Young says, will not only be good managers, they'll be pretty lucky too.