Goodbye, Kansas Wheat?04/09/2018
Kansas throughout the 20th century became known as the breadbasket of the world, since it was the biggest wheat-growing state in the biggest wheat-exporting country.
It maintained that moniker through most of the 1900s and even into the 2000s. To this day, it’s still known for its production of the grain used in everything from bread to doughnuts to livestock feed.
Because of low prices due, in part, to increased world production, the number of acres of winter wheat varieties grown in the U.S. is the lowest in 99 years. Reduced profitability is driving farmers out or leading them to plant more lucrative row crops such as corn or sorghum.
“I believe that the U.S. is going to become a marginal wheat producer as time goes on,” says Greg Stone, a farmer in southwest Kansas.
“Foreign producers have a lot of room to expand. You’ll see wheat prices spike up some years, and the U.S. will grow more of it. As a rule, though, I think the acres will continue to decline,”
Stone was born and raised in Garden City, Kansas, the place he’s called home for all of his 47 years. Despite being a Kansas State Wildcats fan – all of his children are KSU graduates – his days in the Sunflower State are numbered, he says, as he seeks greener pastures
with more water, more promise, and more potential for profit.
He started selling his land in Kansas a few years ago and began buying farms in Iowa to diversify across geography and markets. Stone planted only 400 acres with winter wheat this year, and that was only because he needed a cover crop after harvesting soybeans.
“There was no moisture in the fall and along with low prices, that really put a whammy on acres,” he says. “They told everybody not to plant winter wheat, and then the conditions were so poor, there really wasn’t any incentive.”
Stone isn’t alone.
Acres, Demand Drop
Acreage of winter wheat last year fell to 32.6 million, the lowest level since 1909, according to the USDA, meaning a lot of producers are shunning the grain in favor of crops that offer better profitability. Production in 2017 totaled 1.27 billion bushels, the lowest amount since 1978, USDA data show.
While domestic output is down, increased competition from global growers, including Ukraine and Russia, have pushed total world wheat production to a record 758 million metric tons in the 2017-2018 marketing year that started on June 1. Global stockpiles of the grain will total 266 million tons, also the most ever, according to the USDA.
U.S. export sales of wheat have dropped more than 10% year over year, while accumulated exports as of early February were down just under 10%, government data show. Buyers, instead, have turned to the so-called Black Sea Region for supplies.
Russia this year will export 36 million metric tons of wheat, easily topping the 27.5 million the U.S. will ship to overseas buyers, the agency says. Russia became the biggest exporter of the grain in the 2015-2016 season after the U.S. dominated sales since at least the early 20th century.
The proliferation of wheat output in Russia and Ukraine has weighed on prices. Chicago wheat futures in December fell to multiyear lows, and though they’ve risen a bit since, growers can’t turn a profit growing the grain.
“If you add in land payments, the answer is probably no, you can’t make money, not at this price level,” says Larry Glenn, a broker with Prime Ag in Quinter, Kansas. “If you’ve got land that’s paid for and an oil well in the middle of your land, then it probably is.”
Kim Anderson, an agriculture economist at Oklahoma State University, says growers will this year spend about $171 an acre growing hard red winter wheat, including inputs, interest on operating loans, taxes for land, insurance, and other costs.
Given the cost of production, growers need to get $4.89 a bushel just to break even, Anderson says.
While the U.S. in the past had higher-quality wheat that was coveted by bread-making countries including Egypt (the world’s biggest importer of the grain), Black Sea growers have upped their game. Russia’s 2017 crop averaged 12.4% protein, and test weights were around 59 pounds, Anderson says.
“Their quality of wheat is every bit as good as ours,” he says. “They’ve essentially taken our North African and western Asian markets. They’d already taken our EU and Australian markets, so they’re taking over that part of the world as far as bread flour production, and they’re not going away.”
Stone, the farmer from Kansas, says five years ago, when crop prices were at records, it was easy to make money growing wheat – or any agriculture commodity, for that matter. It was so easy, in fact, it’s led to the current conundrum facing U.S. farmers.
“That’s what destroyed U.S. demand,” he says. “Prices got too high. We had $7 corn, $18 beans, and $10 wheat. The rest of the world figured out real quickly that they could make money, so now the world is awash in grain.”
He owns land in southwestern Iowa near Glenwood, Red Oak, and Shenandoah where he grows corn and soybeans. The land is considerably more expensive, but he’s confident he can be profitable in Iowa vs. southwestern Kansas.
It’s not just an economics issue, he says. The area has become so arid and water is so scarce that it’s become a battle just to secure enough to grow even irrigated crops.
It has become more difficult to get water from the Ogallala Aquifer, a long-disputed water source that’s been coveted by farmers, environmentalists, and recreationalists, Stone says. The extremely dry weather this year is only exacerbating the problem.
That’s not a problem in southwestern Iowa, where rain is plentiful, Stone says.
“That’s the plan, to keep an orderly transition and keep selling land in Kansas,” he says. “The water is running out, and the state isn’t showing much interest in helping us with water rights, so I don’t see much of a future here.”
Prices To Rise
Not everybody is convinced of wheat’s demise.
Mike Seery, the president of Seery Futures in Plainfield, Illinois, says he thinks prices are on their way back up because of production declines in the U.S., which will lead to a shortage of food-grade wheat in the world.
Prices fell to a five-year low near the end of 2017, and there was little hope in sight for bulls. Then, in late December, a days-long freeze likely caused widespread winterkill damage to plants in the Southern Plains. That was followed by several weeks of dry weather, pushing most counties into a severe drought.
While the extent of the damage from the cold snap or the drought isn’t known yet, it will reveal itself during the upcoming harvest, and that will give prices a boost, Seery says.
“Everything is going higher,” he says. “If you’re a farmer, the worst is over. It’s done. Now we start to focus on the 2018 crop.”
A weakened dollar, which fell to the lowest in more than three years earlier this year, will also boost demand for U.S. goods, including agricultural products, Seery says. That, in turn, will boost prices and lead, as it always does, to increased planting next year.
Western Kansas grain broker Glenn says he doesn’t think many lifelong producers will leave the area. He does believe, however, that more farmers who have traditionally been winter wheat growers will switch to fall crops.
Corn is King?
Corn is popular in the region, especially since new drought-resistant varieties are readily available, as is milo, Glenn says.
Oklahoma State’s Anderson echoes those sentiments, noting that Oklahoma wheat harvested acres fell 15% in the past five years, while corn, soybean, and sorghum acres increased. Cotton harvested acres have surged fourfold from 140,000 acres in 2012 to 550,000 acres in 2017.
That’s not a huge surprise, as farmers seek ways to stay in the game, Glenn says.
“It’s always been wheat here, but a lot of farmers are starting to avoid it,” he says. “Some are doing corn-on-corn and no-till. It’s a financial deal. They can just make more money with fall crops.”
Producers of King Corn – mostly growers in Nebraska or Iowa – have long liked to say they’d shun wheat at all costs because it’s not profitable and it’s too easily grown elsewhere, Glenn says. He now hears whispers of that same sentiment in what was, at one time, the breadbasket of the world.
“I used to hear in the Corn Belt that wheat was a dirty word,” he says. “Now it’s getting that way out here, too.”