Money Management

Export boom pushes wheat prices higher for area farmers

As the government shifts to the administration of President Joe Biden, the region’s wheat growers are finally experiencing a price hike that may allow them to pay off loans or upgrade their equipment.

After hovering around $ 5.50 a bushel in the last harvest, wheat prices jumped to over $ 7 a bushel after exporters started buying more, and a corn shortage sparked a corresponding surge. prices.

Randy Fortenbery, an agricultural economist at Washington State University, said wheat prices had little or nothing to do with Biden taking office or the trade war sparked by the former President Donald Trump who led to tariff retaliation from several countries.

“I guess we’ll see a continuation of expanded business opportunities under the Biden administration,” Fortenbery said. “We had already started to see improvement in trade last year” under Trump.

Unlike previous administrations that focused on one trade deal at a time, Trump decided to end or change almost all trade deals at the same time, Fortenbery said.

To offset market disruptions, Trump has put in place billions of dollars in bailouts for farmers affected by the tariffs. As a result, about 40% of all farm income last year came from federal sources, according to the US Department of Agriculture.

These payments enabled farmers to turn a profit in 2020, according to the USDA, and helped farmers have their best net income since 2013, even as the coronavirus pandemic hit the country’s economy.

Excluding USDA loans and insurance claim payments made by the Federal Crop Insurance Corporation, farmers were to get $ 46.5 billion from the government, the largest payment ever between the government and exploitation.

That aggregate figure includes about $ 32 billion in aid through food aid for the coronavirus pandemic and paycheck protection program payments to farmers.

Additional support has come from more traditional income loss programs due to low commodity prices, compensation for trade disruptions resulting from tariff battles and assistance with conservation programs, according to the USDA.

Most of that money did not go to Washington wheat growers, said Michelle Hennings, executive director of the Washington Association of Wheat Growers.

She noted that most of those payments went to Midwestern corn and soybean farmers who suffered crop losses in addition to the effects of lingering trade problems.

“We feed the world. Most of our wheat is exported, ”Hennings said. “It is important that our farmers are supported by the government in some cases.

But she and most of her colleagues would rather have trade deals than bailouts, Hennings said.

Exports to the rescue

Glen Squires, CEO of the Washington Grain Commission, said wheat market conditions began to improve after the Trump administration finalized new trade deals with Canada, Mexico, Japan and China.

Washington, which had its second best harvest in 2020, exported around 4.2 million tonnes of wheat last year. So far this year, it has sent around 5.8 million metric tons to foreign ports.

“So we increased by 1.6 million metric tonnes. That’s a huge number, ”Squires said.

While South Korea has increased its imports, the big driver, he said, has been China.

China had previously been criticized for failing to stick to the Phase 1 agreement to buy US commodities as part of a deal with Trump.

But China, which banned Pacific Northwest wheat until 1999, has increased the volume. China hardly bought any wheat in 2018, Squires noted.

“Last year they bought 131,000 metric tonnes. This year they’re at 779,400 metric tonnes, ”Squires said.

Likewise, South Korea increased its imports from 473,000 tonnes last year to 827,000 tonnes in 2021. “So they are on the rise,” Squires said.

Fortenbery said two major factors helped wheat prices. The first is that corn growers fell well below USDA forecasts, which caused corn prices to soar. As a result, some countries like South Korea have started buying wheat for animal feed as a cheaper alternative to corn, he said.

Second, the value of the dollar has weakened. This means that countries like China and Japan can get more wheat with their currency because it is worth more against the dollar.

“The more we export, the better for the prices,” Fortenberry said.

Production cost

Hennings said wheat growers need $ 6 to $ 6.50 a bushel to cover the costs of planting, plowing, spraying and harvesting.

In recent years, farmers have struggled with prices below or near breakeven, she said.

“In talking to dealers, many farmers bought second-hand equipment because of the price of wheat,” she said. “Most farms have operating loans. We have had a lot of bankruptcies in agricultural countries.

Prices well above $ 7 a bushel, however, give a big boost to farmers who paid to store their grain rather than immediately selling it for harvest last summer.

“We’d love to see it go up, but it’s great if it’s over $ 7 a bushel,” Hennings said. “When wheat prices keep going up, it helps improve life on the farm a bit. It is also good for the mental health of farmers.

As for what happens next, Hennings, Squires and Fortenbery have said they hope and expect the Biden administration to build on existing trade deals and forge new ones.

“We really want the Biden administration to support the continuation of the Phase 1 agreement with China,” Hennings said. “We also want the administration to expand the markets in South America and Central America.”

Squires agreed, noting that the outlook for Washington wheat has improved dramatically following the end of the Trump administration.

“A lot of progress has been made,” he said. “We just have to keep going. “

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