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Spokane, Washington  Est. May 19, 1883

Export boom leads to higher wheat prices for area farmers

Reardan farmer Tom Zwainz unloads his combine during harvest in August 2019. Washington exports have spiked, leading to higher wheat prices after years of stagnant markets.  (Tyler Tjomsland/The Spokesman-Review)
By Thomas Clouse The Spokesman-Review

As the government transitions into President Joe Biden’s administration, area wheat farmers are finally experiencing a boost in prices that may allow them to pay down loans or upgrade equipment.

After hovering around $5.50 a bushel last harvest, wheat prices have gone up to more than $7 a bushel after exporters started buying more, and a shortage of corn caused a corresponding spike in prices.

Randy Fortenbery, an agriculture economist at Washington State University, said the wheat prices don’t have much, if anything, to do with Biden taking office or the trade war kicked off by former President Donald Trump that resulted in retaliatory tariffs by several countries.

“My guess is we will see a continuation of expanded trade opportunities under the Biden administration,” Fortenbery said. “We had already begun to see some improved trade in the last year” under Trump.

Unlike past administrations that focused on a single trade agreement at a time, Trump decided to end or change nearly every trade agreement all at the same time, Fortenbery said.

To compensate for market disruptions, Trump pushed through billions of dollars in bailouts for farmers hurt by tariffs. As a result, about 40% of all farm income last year came from federal sources, according to the U.S. Department of Agriculture.

Those payments ensured that farmers turned a profit in 2020, according to the USDA, and helped farmers have their best net income since 2013 even as the coronavirus pandemic hit broadside into the nation’s economy.

Excluding USDA loans and insurance indemnity payments made by the Federal Crop Insurance Corporation, farmers were expected to get $46.5 billion from the government, the largest government-to-farm payment ever.

That overall figure includes about $32 billion in assistance through coronavirus pandemic relief food assistance and Paycheck Protection Program payments to farmers.

Additional support came from more traditional revenue-loss programs because of low commodity prices, compensation for trade disruptions resulting from tariff battles and conservation programs assistance, according to the USDA.

Most of that cash did not flow to Washington wheat farmers, said Michelle Hennings, executive director of the Washington Association of Wheat Growers.

She noted that most of those payments went to corn and soybean farmers in the Midwest who suffered crop losses in addition to the effects of lingering trade issues.

“We feed the world. Most of our wheat is exported,” Hennings said. “It’s important that our farmers are supported by the government in certain instances.”

But she, and most of her colleagues, would rather have trade agreements instead of bailouts, Hennings said.

Exports to the rescue

Glen Squires, CEO of the Washington Grain Commission, said market conditions for wheat began improving after Trump’s administration finalized new trade agreements with Canada, Mexico, Japan and China.

Washington, which had its second-best crop in 2020, exported about 4.2 million metric tons of wheat last year. So far this year, it’s sent about 5.8 million metric tons to foreign ports.

“So, we are up 1.6 million metric tons. That’s a huge number,” Squires said.

While South Korea has increased its imports, the big mover, he said, has been China.

China earlier had been criticized for not living up to the Phase 1 agreement to purchase U.S. commodities under an agreement with Trump.

But China, which barred wheat from the Pacific Northwest up to 1999, has turned up the volume. China bought nearly no wheat in 2018, Squires noted.

“Last year, they bought 131,000 metric tons. This year, they are at 779,400 metric tons,” Squires said.

Similarly, South Korea has upped its imports from 473,000 metric tons last year to 827,000 metric tons in 2021. “So, they are way up,” Squires said.

Fortenbery said two major factors helped wheat prices. One is that corn producers fell well below the USDA’s forecast, which caused a price spike for corn. As a result, some countries like South Korea started buying wheat for feed as a cheaper alternative to corn, he said.

Second, the value of the dollar has weakened. That means countries like China and Japan can get more wheat with their currency because it’s worth more against the dollar.

“The more we export, the better it is for prices,” Fortenberry said.

Cost of production

Hennings said wheat farmers need somewhere between $6 to $6.50 a bushel to cover the cost of planting, tilling, spraying and harvesting.

For the past several years, farmers have struggled with prices below or near the break-even line, she said.

“In talking with dealerships, a lot of farmers have bought used equipment because of the price of wheat,” she said. “Most farms have operating loans. We’ve had a lot of bankruptcies through farming country.”

Prices well above $7 a bushel, however, give a major boost to those farmers who paid to store their grain rather than selling it immediately at harvest last summer.

“We’d like to see it go up, but it’s excellent if it’s above $7” a bushel, Hennings said. “When wheat prices keep going up, it helps make life a little better on the farm. It’s a good thing for farmers’ mental health, too.”

As for what’s next, Hennings, Squires and Fortenbery said they hope and expect the Biden administration will build on existing trade agreements and forge new ones.

“We really want the Biden administration to support the continuation of the Phase 1 agreement with China,” Hennings said. “We also want the administration to expand markets into South and Central America.”

Squires agreed, noting the outlook for Washington wheat improved greatly at the end of the Trump administration.

“A lot of progress was made,” he said. “We just need to keep going.”