August cash prices for winter wheat are nearing an eight-year low in Eastern Montana, which could make the 2014 crop unprofitable for some, observers say.
Grain elevators in the northeast and southeast part of the state were offering an average price of $4.74 a bushel on Tuesday, according the the U.S. Department of Agriculture’s Agriculture Marketing Service. One has to go back to 2006 to find a lower August average.
Global wheat production is at a record high, according to the USDA, and the glut is driving down foreign demand for U.S. grain. That’s bad news for the young Montana farmers who often lease their land and equipment. Profit margins are often much narrower for young farmers, which makes weathering low prices difficult. Six-figure operating loans for a single a year aren’t unheard of for a farm couple with a few years experience under their belt.
“You’re more susceptible to risk when you’re at the beginning stages of your farming career, or midway through your career, because that’s when you’re servicing a large amount of debt because of land payments,” said Bin Von Bergen, Moccasin farmer and immediate past president of the National Association of Wheat Growers.
Things get better for farmers in the later years of the careers, Von Bergen said. Established farmers tend to own their land. When these farmers need a new piece of equipment they probably have old equipment to sell or trade to offset the cost.
After several years of strong commodities prices, debt-to-asset ratios for established farms is roughly 10 percent, the lowest recorded by the USDA’s Economic Research Service over a half century.
“We’ve had a few solid years where people have been able to replace equipment and restructure balance sheets,” said Gary Brester, Montana State University economist. Established farmers should be able to weather a spell of lower prices, Bester said.
Von Bergen suspects that farmers who locked in prices earlier in the year should be girded for a fall price slump. There’s also the possibility that world demand for U.S. wheat will improve modestly, either because of bad weather in parts of the globe that have yet to harvest or because of global politics like the a disruption in Black Sea wheat sales because of the conflict between Russia and Ukraine.