Starbuck, Man., farmer Ed Rempel hasn’t broken out the champagne to toast today’s high wheat prices.
Something nags at the back of his mind.
“The fertilizer is eating it all up,” said Rempel, as wheat prices floated around 11 year highs.
“I feel relieved, not happy.”
On charts and in raw numbers, wheat prices look great this season.
But farmers are caught in an inflationary trap with fertilizer, fuel and seed prices rising at the same time as the crop price, putting a squeeze on what would otherwise be an extremely profitable year.
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Add to that the escalating value of the Canadian dollar and you have a recipe for decent but not spectacular returns this year.
“This $5 (net per bushel) wheat won’t buy any acres next year,” said Rempel, noting returns for other crops look as good or better than wheat.
American farmers are more cheery. While the loonie’s appreciation relative to the greenback slices profit from Canadian farmers, American growers notice only that wheat prices are rising.
Wheat prices last week soared because of drought in Ukraine, parts of Russia and eastern Europe and harvest delays in the U.S. winter wheat belt.
Generally, Canada’s crop is doing well with the promise of good times ahead if the weather co-operates. The U.S. spring crop is also in good shape.
“If they get good yields and don’t get diseases, they’ll have a great year,” said Mike Krueger, an adviser with the Money Farm of Fargo, North
Dakota.
New wheat crop futures edged past $6 US per bushel on American wheat exchanges last week, far above the $5 prices of early spring.
Krueger sees an inflationary aspect to the current rally.
“It’ll go right into land prices,” he said. “It always does.”
Union Securities broker Ken Ball in Winnipeg said his clients are happy about higher U.S. wheat prices, but deflated by the translated value in Canadian dollars and the difficulty locking down U.S. prices in Canadian Wheat Board producer payment options.
“If we could just get the Canadian dollar to go back down four or five cents and combine with the current (U.S.) wheat price, it would really be something,” he said.
“Our Canadian prices are not perking up to the extent that U.S. prices have.”
Ball added that basis levels on some wheat board pricing options widen every time U.S. prices surge, frustrating active marketers who like to lock in rallies.
Wheat’s price surge came too late to draw in additional acreage, and the CWB said the prairie wheat crop, by area, will likely be the smallest since 1970.
That’s partly due to saturated soils in Alberta and Saskatchewan that prevented seeding, the board said, but also because other crops like canola, oats and barley have excellent returns and have been more economically attractive.
Rempel is frustrated to see high input prices eating up most of his profits. High prices for crops rarely occur and he feels like a civilian caught in an inflationary crossfire.
“It’s wild out here, just wild,” he said.
“The bites we’re getting: we’re talking horseflies, not mosquitoes.”
