This year’s high wheat prices are like a longed-for sequel to a story.
But grain industry analyst Brenda Tjaden-Lepp says 2002-03 wheat prices are more likely to be a last hurrah than a regular encore performance.
The Winnipeg-based analyst said in an interview that farmers should not be blinded by this year’s high prices. They need to get out of growing bulk commodity wheat if they want to make money.
“I don’t think Canadian farmers are going to be all that competitive in the world bulk commodity wheat market for very long,” she said.
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Tjaden-Lepp said prices may be well above the five-year wheat price average, but they fall short of previous rallies. And this rally was brought on by exceptional circumstances that no one should expect to see again soon.
“It took (crop problems in) four of the five major traditional exporters to cause a rally that didn’t take us anywhere near where we were in 1995-1996,” she said.
This year’s rally has fallen short because non-traditional exporters such as Russia and other eastern European states have suddenly become capable of exporting large amounts of wheat. Their ability to push wheat into the world market will only increase, she said.
Between 1980 and 2000, minor exporters supplied about five percent of the world wheat market. But in 2001-02, they took a 22 percent share, which expanded to about 35 percent in 2002-03.
“They have new infrastructure and better facilities to move it out,” she said. “At the farm level they’re getting better varieties and new equipment.”
Private companies in Russia, Ukraine and other countries that export through the Black Sea have invested in new port facilities, new grain handling equipment and new railway equipment.
Eastern European farmers and their grain handling system still have a long way to go before they equal North American efficiency, and that means they have the potential to bite a long way into North American markets.
“As they narrow that gap they’ll be ramping up their productivity and their reliability and all these things that are important in becoming major world wheat exporters.”
Because of rich soils and nearby ports, eastern European farmers will be able to outcompete Canadian farmers on bulk wheat production.
“What we lose money at, they can make a profit on,” she said.
That means farmers face a crucial choice.
“You can either get out of the way of these emerging monsters by producing something different … or get set for a very long period of very low prices,” said Tjaden-Lepp.
Niche market products, such as organic wheat or special identity-preserved wheat, will offer farmers their best chance to escape ever-decreasing bulk wheat prices, she said. Feed wheat produced as part of a livestock operation or tied to an ethanol plant will also offer a better return than bulk wheat production for export, she said.
But she said there is a good chance of another wheat price rally this year.
That may provide a chance to lock in early new-crop prices that are lower than this year’s prices, but better than what will likely follow.
Tjaden-Lepp urged growers to take advantage of the Canadian Wheat Board’s fixed price contract program.
“The futures have to build in high enough prices in order to make sure they buy-in enough acres.”
“By using some of these fancy new tools it’s still going to be possible for farmers to grow wheat at a profit in ’03-’04. Beyond that, I’d be cracking the books to find something else to make money.”
