Written by Paul Penner Wednesday, 24 October 2007 11:04
The word on the streets in most rural towns of central Kansas suggests most farmers are reaping high profits on their farms, thanks to the high prices for their crops. Wheat prices topping $9 per bushel is one for the record books, to be sure. However, one’s enthusiasm needs an appropriate adjustment in perspective.
In response to people asking about my newfound prosperity with $9 wheat, I reply, “I’ll get back to you when I have wheat to sell at that price.”
The primary reason for today’s high wheat prices can be traced directly back to the late spring freeze of this year. A crop that most experts believed would break historical production records was destroyed in a matter of hours as heavy, wet snow pushed the wheat to the ground and set the stage for low temperatures, from which the wheat would never recover.
In layman’s terms, due to lack of adequate production, most farmers have little or nothing to sell when wheat prices are this high. In addition, at harvest, the markets had not fully realized the serious shortages that existed worldwide, convincing farmers to sell what little wheat they did own at lower prices, even though the prices were already higher than normal. Not to mention, most farmers had to pay for the inputs of last year's crop and the next, which are rising in price almost as fast as the commodity markets.
Even when a person’s perceptions change and acknowledge what is happening in the real world, there are forces at work seeking to put its own spin on the truth and influence public opinion.
These forces, the major players in commodity markets––Bunge, Cargill, ADM and transportation companies like BNSF Railroad, environmental groups including Ken Cook’s Environmental Working Group––play important roles in shaping public opinion.
Their methods may vary, but their motives are the same. They desire to protect their own self-interests and want to take advantage of the circumstances.
Three cases in point support their roles in shaping public opinion. As central Kansas experienced its worst wheat crop disaster in history, western Kansas experienced record-setting production.
As it turned out, western Kansas farmers were penalized by grain companies that charged a higher basis (difference between KC futures and local elevator price), more than doubling the costs over the previous year.
At a recent National Association of Wheat Growers meeting in Denver, I asked a grain buyer for an explanation. He blamed the railroads for reacting to a glut of shipments at the gulf ports, and subsequently, their (grain company) widening of the basis rates with local elevators.
I was not able to get a response from a railroad representative, due to conflicting meeting schedules. However, BNSF Railroad recently published a notice of a rate increase, targeted for shipments of wheat only. The increases range from two to six cents per bushel, depending on the point of origin and destination.
No rate increases were planned for other commodities.
Additionally, railroads increased the procurement fees for securing access to railcars, charging non-refundable deposits in excess of $1,000 per railcar, with no expressed guarantee the cars will even be available and delivered on time.
Incidentally, BNSF Railroad posted record profits for all products transported for the last quarter completed, up $144 million from the previous quarter in 2006. Yet, its on-time performance dropped from 83.8 percent to 76.8 percent for the same period in the agricultural sector, while on-time performance improved in every other sector.
(For more information on this, check out the Web site www.bnsf.com/markets/agricultural/ag_news/pricing.html. In addition, for a brief look at NAWG’s position on this and other ag-related issues, go to www.wheatworld.org/html/info.cfm?ID=20)
Lastly, numerous special interest groups are weighing in on farm bill discussions as the Senate is considering changes to the 2002 farm bill. The perception of these special-interest groups is that farmers are making record profits and therefore, would not miss money taken from the commodity title, which would be diverted to fund their own special pet projects.
In the House-passed version of the 2007 farm bill, special-interest groups were successful in convincing the majority of legislators to move $4 billion away from crop insurance subsidies to other programs.
Before the final vote was cast—which, to his credit for fighting for Kansas’ interests, Rep. Jerry Moran voted against the final draft—another $1 billion was stripped from crop insurance subsidies to fund a school lunch program for Muslim girls— a worthy program by its own merit that deserves consideration without resorting to gutting an equally worthy program—which seriously undermines the safety net for American producers.
Equally serious is Ken Cook’s desire to eliminate all farm subsidy programs and divert those funds to environmental programs that he favors.
Considering the recent high prices allegedly received by farmers for wheat and other commodities, his spin on agriculture may influence an ever increasingly urban Congress that has no real connection with agriculture other than viewing wheat fields from 37,000 feet or while driving on the interstate highway.
The farmer understands that price cycles come and go. Prices may be high today, but that’s no guarantee they will remain around long enough to benefit from them.
If they can capitalize on good prices, most farmers are rebuilding equity lost from years of drought, low prices and narrow margins. Additionally, they must be financially prepared to weather the next tough time that is sure to come.
American agriculture in general, and more specifically Kansas agriculture, needs your support as it works with our elected representatives to fashion a farm bill that serves an industry that is the envy of the world as it produces food, fiber and energy for its citizens.