Kansas wheat farmers are heading into the 2010 harvest just two years removed from record high cash prices.
What a difference a few years makes. This year?s low cash prices are exacerbated by a widening basis for Kansas grain merchants and a current inventory of U.S. wheat that totals more than 1 billion bushels.
Meanwhile, global stocks of wheat are at all-time highs, due to record wheat production the past two years by key wheat-producing countries and new production by countries that historically have not grown wheat.
Justin Gilpin, chief executive officer of Kansas Wheat, said the reality is harsh.
?Basis levels are among the worst we?ve had in the last 30 years,? Gilpin said. ?Country elevators are responding to an oversupply in the domestic market and lack of export market activity for lower protein wheat.
?Also, rail freight costs from country elevators to the ports have increased and farmers are having to bear that burden.?
Gilpin added that the cost to ship a bushel wheat from southwest Kansas to Houston via rail, has become more expensive than the cost of moving that same bushel from Houston to Nigeria via ocean vessel.
Basis at country elevators has been as wide as $2 per bushel and has swung from 80 cents to $1.25 per bushel throughout the state, according to Tom Leffler, owner of Leffler Commodities.
?We?ve been used to basis being from 50 to 75 cents per bushel,? said Leffler, who is a market analyst for the Kansas Association of Wheat Growers.
The dilemma facing wheat is multi-faceted.
?We don?t have good demand for U.S. wheat,? Leffler said. ?There is simply not a plentiful supply of good protein wheat – 12 percent or better?and it doesn?t look likely that we?ll see high protein wheat this year.?
Also, some grain elevators are penalizing farmers for delivering wheat that does not meet specific quality traits.
?We?re seeing huge discounts on wheat if it does not meet the elevator?s standards for foreign material or if it does not meet grade in some way or another,? Leffler said.
Adding insult to injury, some western Kansas cattle feedlots are beginning to feed wheat instead of corn or grain sorghum, he adds.
Leffler encourages farmers to consider not selling wheat after harvest, unless they absolutely need the cash. Instead, there are some options for producers who have not forward priced their grain:
? Marketing Assistance Loan. Producers can obtain a FSAy Marketing Assistance Loan on wheat that has been harvested and is stored in a warehouse or on the farm. Signup occurs at the local FSA office.
Loan rates are dependent upon the county, and interest rates are set monthly. The loan must be repaid in nine months, but the loan can give producers an influx of cash with which to pay expenses, according to John Drach, price supports division director of the Kansas FSA.
? On-farm storage. ?If you have on-farm storage, put your wheat in the bin,? Leffler said. ?It could be several weeks, or it could be a few months before basis improves.?
? Commercial storage. If on-farm storage is limited or non-existent, producers can store their 2010 wheat production in a grain elevator.
?The risk is, you?re at the mercy of the elevator,? Leffler said. ?You could get caught where their bid may be worse after harvest, when neighboring elevators might have better bids.?
? Look for premiums. ?It is important that farmers communicate with their grain elevators to be aware of potential protein premiums,? said Gilpin, who added that many local elevators cannot test for protein at their location and even if they could, the may not be able to segregate high protein wheat from low protein wheat.?
? Loan Deficiency Payments. Producers are eligible for LDPs if a CCC 633 EZ Form, Page 1, has been completed. Most county offices require this at DCP signup time. Posted LDP rates vary by county. To obtain an LDP payment, producers need to complete Page 2 of the form. For more information, contact your county FSA office.