It must be tough being King Wheat these days. Not only is there too much – much too much – in stockpiles around the world today, depressing prices compared to other crops, but it stinks in the long term from the perspective of farmer returns.
For a few years now analysts have been pointing out that hard red spring wheat is progressively becoming a “rotation crop,” which is a crop not grown with expectations of big profits but because it fills a gap in a rotation that contains crops that do have profit potential, like canola.
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“Wheat is just a rotation crop (for many farmers),” analyst Mike Jubinville noted this week in his presentation at St. Jean Farm Days in St. Jean Baptiste this week, and it wasn’t a comment anyone disagreed with. A couple of years ago wheat didn’t seem so bad, when hard red spring wheat futures were popping above $20 per bushel on the Minneapolis Grain Exchange futures contract. But that peak just disguised wheat’s gradual eclipse on the prairies.
Everyone’s waiting right now to hear what the USDA thinks the size of the U.S. winter wheat acreage is. That report will be released Tuesday a.m., which is one day late for the paper version of our paper (DRAT!) but will be covered on our website and on this blog. But whatever the USDA finds, there’s little question wheat is the sick little sister of corn and soybeans and likely to become more so. Not only have regions like the Former Soviet Union become huge exporters of wheat, but lagging wheat productivity has crippled farmer returns. Farmers can’t make up for lower prices with higher wheat yields.
Genetic modification has allowed corn and soybeans to explode in popularity, dramatically boost yields, and spread into areas no one thought could consistently produce corn crops. The booming yields haven’t just given farmers higher net returns, regardless of per bushel prices, but also allowed Midwest U.S. farmers to simultaneously enjoy a large livestock industry and build a huge biofuel industry. We haven’t been able to do anything like what they’ve done in Iowa. Jubinville talked about coming corn varieties that he’s heard will allow corn to be grown anywhere on the prairies. He thinks that will “cornify” the prairies because corn returns much better than other cereals. So wheat will likely continue to be pummeled in the marketplace of farmers’ acres.
What could cure this? Obviously a return to net returns that equals or beats that of competing crops. But that will be hard to achieve. Various forces of irrationality are violently opposed to genetic modification of wheat. These are the folks who quite happily consume GM canola oil and a million soybean and corn products, but who run to the barricades over the idea of genetic modification for wheat. Don’t ask them to explain their contradictory position: there is no rational explanation. It’s a gut reaction.
But that creates a very rational problem in wheat markets: if you approve and allow GM wheat to be grown, you will risk endangering many wheat markets, and that will hurt farmers. So it doesn’t matter if the consumer reaction is irrational, it can’t be allowed to become a problem. The Canadian Wheat Board’s position on this seems both reasonable and unsustainable at the same time: it’s not ideologically opposed to the development, but wants market guarantees and contamination tolerances established before it is allowed. This is reasonable because no one wants to risk their markets on a gamble that consumers will meekly accept GM wheat. It’s unsustainable in the long run because there won’t be much wheat grown on the prairies in a few years if it keeps slipping in terms of relative returns. The best thing that could happen to bridge this problem would be for the Americans or Australians to go forward with GM wheat, break the consumer opposition to the stuff (it wouldn’t likely last long), give us a couple of years of non-GM premiums with our wheat, then give us a chance to slip in behind them once acceptance is proven. That’s probably what the folks at the board are hoping for. Who knows? The Australians are desperate for drought-tolerant wheat varieties and if GM technology can do it for them, they may wade into the tempestuous waters.
The problem with this is that no one wants to go first, which is why GM wheat development is happening so slowly. And if other countries go first, the seed developers will develop varieties fit for their conditions, not ours. So when we do embrace GM wheat, we’ll be a few years behind our competitors who are getting bigger yields and better quality and higher net returns for their wheat.
Regardless of who goes first, wheat is a long way away from becoming genetically modified. Seed companies are really just getting started on developing GM wheat varieties, and modifying wheat is much tougher than developing GM corn, soybeans and canola. (Don’t ask me to explain the science behind this. I have learned it a few times, and a few days after learning, the knowledge floats out of my head like the muddy water flows down the Red River.) So we’re at least a decade away from any real acreages of GM wheat being in farmers’ fields.
So that leaves us with this unpleasant long term trend: spring’s coming and wheat looks like a bad crop to plant.
