With grain in the bin, Montana farmers are watching as wheat prices make a late-year climb.
Drought conditions elsewhere are once again working in Montana’s favor. America’s Corn Belt suffered its worst drought in a half century this year and supplies are tight. The drought bodes well for ordinary quality wheat, which is often fed to animals as a replacement when corn gets expensive.
“When the price of corn goes up, the floor price for wheat — the price of feed wheat — is pushed up because it’s a substitute,” said Vincent Smith, Montana State University economist.
At elevators across Montana on Tuesday, cash prices for wheat prices ranged $8 a bushel to $8.84, with the exception of southeastern Montana, where a $7.69 a bushel payout was the outlier.
Heading into the last two months of the year with a strong cash market could signal another $1 billion wheat year for state farmers. Once a rare high mark, $1 billion in wheat sales has been the Montana norm four of the last five years.
Growing conditions in most of Montana were favorable in 2012. While drought hit southern Montana hard, devastating the region’s cattle ranchers, the state’s wheat crop concentrated further north did well.
“As far as the quality goes, we look really, really good for both winter wheat, spring wheat and durum,” said Cassidy Marn, marketing program manager for the Montana Wheat and Barley Committee.
Production was slightly down, but Marn said the state crop will probably be 90 percent of normal. Protein levels, which makes Montana grain so valuable as an export, is averaging about 14 percent, Marn said. Only 2008’s crop had better protein values.
For now, the price difference between ordinary wheat and the high-protein variety is as little as 33 cents a bushel at some elevators. Baker farmer Randy Wolenetz said the spread is understandable.
“Why you’re seeing such a small difference for high-protein wheat is because there’s a lot of high-protein wheat,” he said.
It takes a little summer stress to drive up protein levels, and Montana had its share, Wolenetz said. Occasionally, a late rain just before harvest will drive protein levels down, but for many farmers, this year's harvest was dry.
At Wolenetz farm, crop conditions were good on acres that were fallow a year earlier, which helps keep the soil moist. He got 30 bushels an acre on his previously fallow acres, which was about average. His continuous-crop acres didn’t fare so well.
If the demand for corn remains tight, wheat prices should stay strong. The U.S. Department of Agriculture estimated this month that ending stocks of corn were roughly 600 million bushels, slightly more than half the bushels on hand at the beginning of 2012. Two years ago, ending corn stocks were 1.7 billion bushels.
Corn wields more influence on wheat prices than any other factor, Smith said. For the last four years, demand for corn has pushed wheat prices upward, not only because of America’s demand for corn products like animal feed and sweeteners, but also because of corn ethanol.
The federal government’s renewable fuels standard requires ethanol to be blended into gasoline. In 2011, roughly 5 billion bushels of corn went to fuel.
There are other factors driving up wheat prices. Ukraine, a major wheat producer, has indicated it may curb exports in November. Drought hit Black Sea-region crops hard this year, but corn trumps all.