What farmers facing flat prices
New exporters of cheap wheat contribute to low U.S. prices

John Stucke
Staff writer

Click image to enlarge At a glance Interview with Tom Mick

Wheat farmers seemed poised to climb out of a five-year rut last year as prices peaked and weather conditions promised a good crop.

Buoyed by a price rally, farmers planted more acres of Eastern Washington's dominant winter wheat crop, which was fetching more than $4.70 a bushel.

Then the situation changed.

Tom Mick, chief executive officer of the Washington Wheat Commission, said the enthusiasm began melting away this winter along with prices, which stood at $3.90 a bushel last week.

"If we have `normal weather' across the world," Mick said, "it doesn't bode well for wheat."

Last year's price was a bubble, inflated by drought-stricken harvests in Australia, Canada and the American Great Plains.

It was partly predicated on worries that wheat reserves were dropping too fast, which would increase demand for American wheat. It turned out that the government was dumping wheat on the market, monetizing its reserves to fund foreign food aid. When increased demand for American wheat didn't materialize, prices dropped.

Opinion on where prices are headed vary, but Mick said increased wheat acreage may produce a bumper crop that fetches maybe $3 a bushel rather than well above $4.

"Watch out for a flood of wheat," he said when looking ahead. "Drought elsewhere, of course, would be beneficial to the price."

Larry Makus, an agricultural economics professor at the University of Idaho, predicted wheat prices won't move much.

"I think we're looking at a fairly flat market," he said. "I see more upside potential than downside risk. It would take a real banner crop to drive the price way down, while it wouldn't take as much to drive up the price."

The wild card for wheat is nontraditional exporters such as Pakistan, India, Ukraine and other Black Sea countries that were formerly part of the Soviet Union. These countries emerged as big players during the past two years, selling wheat cheap.

Mick said Egypt was buying wheat from these countries for about $94.50 a metric ton at the same time the United States was asking the Egyptians to pay $160 a metric ton.

"We saw this coming, but didn't expect the difference to be so dramatic," Mick said.

Makus said perceived shortages allowed these countries into the export arena. He doesn't expect them to stay.

"I don't think they can be counted on to be reliable enough producers to sustain this market share," he said. The market he alludes to was 22 percent in 2002, and by some estimates, could reach 40 percent this year.

Historically, these countries were responsible for up to about 8 percent of wheat exports.

The countries were among the factors that deflated prices.

"Geez, when you look at what should have happened compared to what did happen, it's sad," said Makus.

It could have been worse had the weather not cooperated. This winter has bolstered expectations for a banner crop.

Rain in December and January helped soil moisture. And farmers dodged a severe winter cold snap when fields were left without snow cover.

With some spring rains, the area crop should be good, said Douglas County farmer Roger Wesselman, president of the Washington Association of Wheat Growers.

Among the uncertainties facing farmers this year is conflict in the Middle East.

"If it turns out to be something that really gets ugly, you could have a substantial portion of the Arab world looking elsewhere for grain exports," Makus said. "It's really hard to say. It may be that it's a two-week thing and then people are patting us on the back and saying nice job.

"Maybe it will be like Y2K: We agonize over it, and then it comes and goes and isn't anything."

Mick, who helps sell wheat overseas, said a war on Iraq might initially mean more wheat exports to feed refugees. But the market aftershocks are too difficult to predict.

The one certainty for agriculture is federal help.

In Spokane County's rural areas, the federal government has repeatedly rescued farmers from financial turmoil with subsidies, conservation payments, low-interest loans, insurance guarantees and numerous other programs.

In fact, from 1996-2001, farmers in Spokane County received $64.4 million from the federal government. These payments reached $266 million in Whitman County and $196 million in Lincoln County, neighboring counties where more land is dedicated to agriculture.

A new Farm Bill passed last year ensures that such support will be available for the next 10 years.

Agriculture fact

About 0.7 percent of Spokane County workers are directly employed in the agriculture industry. The numbers are higher in Lincoln County (about 24.8 percent), and Whitman County (about 8.8 percent).

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