There are two historical high-water marks that “wheaties” often refer to when discussing rapid increases in wheat prices — the great Russian wheat buys of the 1970s [see article on Page 14], and when U.S. and 
global wheat supplies ran short in 1996. But this year’s surge blows previous wheat highs out of the water. Looking back at historical closing prices at Minneapolis for perspective, the spring wheat futures price closed at $5.43 on Aug. 8, 1973, double the price it was on May 1, 1973 ($2.22). The price hit $6.01 on Feb. 25, 1974, but wouldn’t climb to the $6 level again for another 22 years, when Minneapolis closed at $6.05 on April 19, 1996. The $7 benchmark was established on May 9, 1996, when the price hit $7.02, then $7.32 the following day. It declined from there, and by November 1996 the price had fallen back into the $3 range.
It took 11 years for the Minneapolis price to see $6 again, when it closed at $6.05 on June 21, 2007. Then it kept climbing: $7… $8… $9! Minneapolis December 2007 futures closed at $9.26 on October 1, and Chicago and Kansas City wheat futures zoomed well into the $9 territory as well — unfathomable.
As I have noted in this space before, these heady futures prices don’t equate to actual farm prices. The local price is less, reflecting handling and shipping charges as well as quality discounts that can and often do knock the price down even further.
Today’s rising wheat prices may signal a new paradigm in the grain markets |
Consider too that many farmers already sold a good share of their anticipated new crop wheat last spring, in the $4 to $5 range. And while the wheat price has never been higher, expenses for farm inputs such as diesel and fertilizer are at their highest too. All in all though, it’s still been a storybook year for wheat.
So what’s behind this incredible price rise? High demand, low supply. World ending stocks have dropped to a 30-year low, and there are wheat production and quality problems in key spots around the world, including drought and low stocks in Australia, lower acreage and production in Canada, drought in eastern Europe, lower quality in western Europe and drought in Ukraine as well as northern Africa.
Throw in the effect of a weaker U.S. dollar and Uncle Sam is the best place to go for wheat.
A hot U.S. wheat export market is also translating into hot business out of Duluth-Superior, where wheat is the bread and butter of this Port’s ag-related shipping traffic. In 2005 and 2006, spring wheat and durum represented close to 80 percent of the total grain and grain products shipped from the Twin Ports, according to Ron Johnson, the Duluth Seaway Port Authority’s trade development director. Five grain companies have a presence with six terminals here: AGP (Ag Processing), General Mills, Cargill, ConAgra/Peavey and CHS (Cenex Harvest States).
“We’re doing a lot of business into Europe and Africa out of the Twin Ports, and I’d expect that demand will continue all the way to freeze-up,” said Rick Dusek, director of merchandising with CHS Grain Marketing. The demand is high despite freight rates double what they were in recent years.
It isn’t just high energy prices affecting freight rates; it’s high shipping demand, too, said Chuck Hilleren, a longtime shipping agent with Guthrie-Hubner.“There’s only so many ships that entertain the lakes business, and demand for it is extreme right now, twice the capacity of available ships, and that’s driving the price up,” said Mr. Hilleren.
But because of the global wheat situation, wheat shipments are strong, said Mr. Hilleren, despite the high freight rates that today are over $100 per ton compared to around $30 per ton back during the days of the legendary Russian wheat shipments. Metaphorically speaking, wheat in the Northern Plains and grain traffic out of Duluth-Superior often ride trade waves with the same ship. When Europe and northern Africa need hard red spring wheat or durum, the best place to shop is the Dakotas and Minnesota, and the best way to move it is through the lakes. “When demand is good through Duluth-Superior, it’s good for all of us,” said Neal Fisher, administrator of the North Dakota Wheat Commission.
Two key features of U.S.-grown hard red spring wheat and durum are their protein and quality. Also, the Twin Ports are well suited to handling smaller bulk vessels, which can be an advantage in preserving grain quality.
Grain companies based in Duluth-Superior have the capacity to blend the type of wheat that customers need, said David Torgerson, executive director of the Minnesota Wheat Council. “It’s a high quality port,” he said.
Eventually, the feeding frenzy for wheat will subside, and so will demand and price. That’s why it’s important for all involved with the wheat industry in the Northern Plains, from producing it to shipping it, to keep promoting it in global markets. As other crops grown in the Northern Plains are increasingly being used domestically (corn for ethanol, for example), wheat is the commodity most likely to continue to depend on an export market to thrive, said Mr. Torgerson. Thus, the industry — wheat shippers and carriers and the grain trade out of Duluth-Superior included — has a vested interest in Northern Plains wheat acreage and production.
The more wheat that’s moved out of Duluth-Superior, the better the price of wheat in the Northern Plains. Spurred by increasingly volatile weather and more grain grown for biofuels, today’s grain prices may signal a new paradigm in the grain markets. Expecting $9 wheat to persist would be a stretch, but the odds are good we won’t have to wait another 11 years to see stable high-priced wheat again.
Ag writer Tracy Sayler, who was based near Fargo, N.D., died unexpectedly in October. Please see a remembrance of Tracy on the next page.