Ag Expo speaker: Wheat faces challenges in long term

Eastern Washington wheat growers face an uncertain future even with returning market stability following recent trade agreements with China, Mexico and Canada, an agriculture economist said Wednesday.

Randy Fortenbery, a Washington State University professor, delivered a forecast to area farmers Wednesday at the Spokane Ag Expo and Farm Forum that mixed some short-term optimism on prices with long-term reality that could push area farmers out of the business.

The U.S. Department of Agriculture predicts national wheat prices will remain at or below $5.50 per bushel going out 10 years. Fortenbery said the actual price locally would be about $6.25 for soft white wheat.

“That’s going to cover the variable costs of production. That’s all the banker wants to know,” Fortenbery said. “The bigger issue is land prices. If the (wheat) prices don’t justify the continued increases in land prices, it’s going to be more and more difficult to finance land. That’s where I see this being a problem.”

Otherwise, the short-term markets have shown some positive signs, he said.

“Last year, we were sort of entering into the most radical renegotiation in terms of trade alignment we’ve had in probably 100 years … because we were trying to renegotiate with everybody,” he said. “Once we entered into battles on trade, though, the first place most of our trading partners targeted was agriculture because they knew that’s what would hurt us more than any other sector.”

After the speech, one farmer asked Fortenbery a question that focused on the trade policies of President Donald Trump.

“Would I be right if I guessed that farmers might be better off by voting for politicians that support trans-Pacific trade agreements and that type of thing, as opposed to politicians that support tariffs?”

Fortenbery answered with a solid maybe.

“It depends. The grain producers have tended to support the current policy regime, but I think they’re thinking that they will end up better off in the long term for the hit they are taking in the short term,” he said. “But all that’s speculative. So, I can’t really say which one is better.

“Personally, I think trading is better than not trading, especially for an export-driven economy. But how you get there is a different question.”

Overall, the national average price of wheat has limped along at about $4.55 a bushel, although prices tend to be higher in the Pacific Northwest.

“That’s a very low price relative to the previous several years. How can our balance sheet improve and our price deteriorate? Well, it’s because it’s a world market,” Fortenberry said. “What happens to the wheat in the U.S. is more affected by what happens in other countries than by just the U.S. itself.”

The United States makes up about 15 percent of the world’s wheat production. The USDA predicts that number will fall to 13 percent or 12 percent, based on increased production in Russia, Ukraine and the European Union.

“The smaller our share of the world trade, the less influence we have on the world price,” Fortenbery said. “This is a little disconcerting.”

But the good news is that the USDA has been overly optimistic in how many bushels the U.S. will export to other markets. Once wheat exports failed to meet those expectations, wheat prices fell.

“This year, it’s been the opposite,” he said. “The good news for us in Washington, we’ve been doing better than the rest of the country. So we have, this last year and this year, the highest prices in the last four years. That’s not true in most wheat-producing areas. So even though prices here are not attractive, relative to everybody else, we’re actually not doing too bad.”

However, the 10-year outlook on production and prices looks grim for area farmers. It predicts steady increases on the cost of production, which includes the cost of seed, fuel and labor, and flat or no price increases for wheat.

“This is a worst-case scenario,” Fortenbery said. “Because what the USDA assumes is that everybody has a great crop and everybody’s yield continues to improve. If everybody produces at near full capacity, this is what prices do. Well, for that to happen over 10 years, it’s pretty unlikely. So, it’s going to take a big disaster somewhere, I think, to make this look a lot better.”

Even the recent catastrophic fires in Australia won’t cause much change in wheat prices, he said. Most of the fires have burned grazing land and missed wheat ground.

Otherwise, the recent trade agreements have helped boost wheat prices. “Right now, we’re coming back to where we were,” Fortenbery said. “That’s probably positive.”

Washington’s main crops based on value are apples, dairy, wheat, cattle and potatoes.

“Every one of those five agricultural commodities in the top of the list are very heavily influenced by the export market,” Fortenbery said. “So, what happens in these trade agreements really affects the rural communities in Washington.”