THUNDER BAY, ON August 6, 2010 ---- Wheat is something like water, we need it to survive yet we seldom wonder what will happen if we run out. In Thunder Bay, wheat is always quietly present in the background of our daily lives. Our grain elevators are a source of employment for many, and wheat in this sense dominates the skyline along our harbour. Ships from all around the world visit our port, often to pick up a load of golden grain.
A large “Laker” can carry up to 29,000 tonnes of wheat that makes a lot of pizza! I can remember when I helped my brother harvest on his farm that at the end of the harvest celebratory dinner in the local town cost more than a metric tonne of wheat, which at that time was $120. It seemed so unfair. For years low prices have barely covered the cost of fuel needed to grow the crop. Canada and Australia and a few other countries export wheat in the face of competition from countries with huge subsidies for their farmers. We could compete because in Canada we have the land for large scale operations, and wheat is the perfect mechanized crop. In recent years the wheat picture has changes.
The amount of land sowed in Canada in wheat is falling and being replaced by other crops which have a potentially higher yield. On my brother’s farm, he counts on making most o his money from growing Canola, further south in the United States the favoured substitute is corn, or perhaps soybeans.
Of the cereal crops, wheat is perhaps the grain humans are most adapted to eating, yet recent eating trends in North America show declining bread consumption. Factored together with high yield milling processes, the flour millers need less grain to produce the same amount of flour. Further to this countries that we used to export grain to are now exporters themselves. China and India will be planting more hectares this season compared to last. The net result is the markets were prepared for record inventories this season, even as late as March it was estimated that the U.S. alone would top one billion bushels in inventory. Prices were going to hit bottom, they predicted.
Farming like investing is a risky business. You take your chances on the market, as well as what nature throws at you. As the growing season progressed there was more unplanted acreage in Canada due to flooding mostly in Manitoba and parts of Saskatchewan. Then there is drought in Russia, and their recent ban on wheat exports up until the 31st of December, some countries are now scrambling to find wheat supplies, failure to do so could have serious consequences for any government.
A phrase I often hear on the farm is “A good farmer has one crop in the field, one in the (grain) bin and one in the bank.” This is an enviable position for any farmer to be in, and it will allow them to continue operations through adverse conditions. At present there is still plenty of grain in Canada and there is no danger of paying $6.00 for a loaf of bread.
This year farmers who expect their crops to come in can expect to earn a bumper price for their efforts. Perhaps farmers like my brother might get a new truck! But then farmers like my brother would say this has been a perfect farm truck for 47 years and it will be for another 47 years so why get another one!
CNN is reporting this week that:
The price of wheat has surged more than 80% from its seven-month low in June, rallying to its highest level since August 2008 this week, as Russia said it would ban grain exports until Dec. 1 due to a drought that has destroyed more than 20% of its wheat crop. Prices retreated Friday but still remain up 10% for the week.
If prices resume their upward trajectory, you could wind up paying 25% to 30% more for a loaf of bread and at least 10% more for a pizza by the end of August or early September, said Darin Newsom, a senior analyst at Telvent DTN, an agriculture and commodities information company.
That would translate into a price hike of as much as 90 cents more for a $3 loaf of bread, and a bump of $1.40 for a $14 pizza.