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Western wheat growers reaping huge benefits of ‘perfect storm’

As California and Arizona wheat growers go into the home stretch to an early summer harvest of 925,000 acres of 2008 red, white and durum crops, there is an unprecedented economic euphoria similar to winning agriculture’s mega-lottery.

Western farmers are getting prices for wheat that are double what they have seen for decades.

“One year I sold a small lot of durum for $9.75 per hundredweight,” said Brawley, Calif. producer John Benson, who has sold his 2008 durum crop for an average of $400 per ton and booked a large portion of his 2009 durum wheat crop for the same price that will not be seeded for six months.

“I have never seen wheat prices half as good as what we are experiencing,” said Benson, who has been farming in California’s Imperial Valley for 44 years. “I am flabbergasted. It is a once in a lifetime situation. Farmers are taking care of their wheat like never before.

“I have yet to talk to a farmer who is not going wall to wall durum next year ... at least 150,000 acres in Imperial Valley,” said Benson. This year the veteran producer said there are 100,000 acres of durum in the desert.

Some 350 miles north of Brawley, Michael Boyett of the family-owned Boyett Farms in Corcoran, Calif. said wheat contract prices are so attractive right now his family has sold a small portion of its 2010 crop.

“We do not typically contract that far out, but with these prices you have to look at it,” said the veteran Kings County, Calif. producer. The Boyetts will harvest about 1,500 acres of white wheat this season. White wheat has become popular in recent years in the San Joaquin Valley due to reoccurring problems with stripe rust in hard red winter wheat, the mainstay of Central Valley grain varieties.

“I have never seen wheat prices like these being offered now in my lifetime, and I have been farming 42 years,” said fifth generation San Joaquin County, Calif. farmer Michael Scriven, chairman of the California Wheat Commission who farms in the San Joaquin Delta west of Lodi, Calif.

Hard red winter wheat prices of $350 per ton are common — “double the highest prices I have ever seen.”

Scriven agrees with Boyett that prices now available for wheat crops two and three years away are very enticing. “You do not want to pass up prices like we are seeing because there is always the chance prices could fall out of bed.

“On the other hand, in 2010 we could see diesel prices of $6 per gallon and who knows what will happen with fertilizer prices by then,” said Scriven. “Today’s contract prices for 2010 wheat could equal $90 per ton upon delivery, if costs keep climbing at current rates.”

“We are pricing fertilizer prices on a daily basis now,” noted Scriven.

Demand for Western wheat is the result of many factors several referred to as the “perfect storm.”

Scriven said world stocks are down to an all-time low. There have been droughts in several countries like Australia and New Zealand. At the same time, countries once considered developing nations have growing economies and expanding demand for products made from wheat.

“All of this is coming together to create a price for California wheat no one would have ever thought possible before,” said Scriven.

Wheat acreage in California this season is up 32 percent; 80 percent in Arizona.

Three and four ton irrigated wheat yields offering gross returns of from $1,000 to $1,500 or more per acre have elevated what was once considered a rotation crop growers hoped to break even with, to one that is being mentioned alongside processing tomatoes, corn, cotton, sunflower seeds, alfalfa and other crops.

“What is rather remarkable is the mere fact that wheat is being mentioned in the same breath as tomatoes, cotton and corn,” said Michael Edgar, general manager and vice president of Barkley Seed in Yuma, Ariz. Barkley is a major supplier of durum and other wheat seed, as well as a diversified farming operation.

The perfect storm started brewing in July 2007 when Syria cancelled a 400,000-ton durum wheat order from the European Union. EU countries, especially Italy, were sent scrambling to buy pasta wheat and the only place where weather had not cut production was in the desert durum production areas of Arizona and California.

Italians cannot live without their pasta.

That is not unprecedented in the world durum market. Past shortages have run up durum wheat, considered a niche wheat crop. For example, only 2.6 million acres of the almost 64 million acres seeded to wheat this year in the U.S. are durum/pasta wheat.

“What is different now is that prices for all other crops — spring wheat, corn, red wheat, beans — you name it — are up to astronomical levels. It is not one crop — durum — flying high by itself, but it is growers saying, wait a minute; look at these corn prices, and look at these other crop prices. Prices are high across the board,” Edgar explained.

For the total world wheat market, Edgar said reports over the past decade indicate that in seven out of the last 10 years worldwide production of wheat has not met demand.

“You cannot keep that up for long. What has happened is that carryovers have been drawn down in all grains and what you have are markets that are on fire,” he said.

Weather problems elsewhere in the world have exacerbated the shortages, and the U.S. (particularly in irrigated wheat production areas) has become the “world storehouse for wheat and the world is paying dearly for it. U.S. wheat is getting bought” at unprecedented prices not only for 2008 crop, but even remarkably, far into the future.

“When you start talking about trading in 2009 wheat and beyond, you are truly moving into uncharted territory because of input costs. Who knows what input costs will be next year or the year after,” said Edgar.

The future will take care of itself, but for now producers are thrilled to bask in an irrigated Western wheat crop that looks good. However, a lack of March rains dusted off the high hopes of a bin-busting dryland wheat crop. Until March, there had been adequate rainfall for the dryland crop. At these prices, a normal dryland wheat yield would represent a license to print money.

“The desert durum crop looks like an average crop ... not a barn buster, but not bad either,” said Edgar.

There is a bit of uncertainty about the final crop tonnage since many growers, including Benson, planted wheat much later than the typical fall seeding time.

“We planted our last 10-acre block on April 1,” said Benson. “If we get two tons from it, we will be happy.” That is roughly half a normal yield, but what Benson did was common among desert durum growers trying to capitalize on the highest durum prices in history, said Edgar.

“Guys were taking out weak stands of hay in the spring to plant wheat,” Benson said. This is with alfalfa prices of more than $200 per ton for dairy quality hay.

As the fall planted crop moves toward maturity, growers applied nitrogen. In some cases that was for yield, but in other situations it was to ensure the wheat met protein delivery requirements.

“With N prices through the roof, you don’t want to use N unnecessarily. However, if you don’t waste 60 to 75 units of N on the tail end of durum you do not hold that protein at 12 percent or more. Late N on durum does nothing for yield or growth, but it will hold protein up,” said Benson.

“You do not want any wheat to run out of gas at the end with these prices,” stated Benson.

Wheat growers in Northern and Central California have been troubled with stripe rust outbreaks, and it is back again this year. Once again, it has shown up in a variety characterized as stripe rust resistant, according to Jerry Schmierer, University of California Cooperative Extension farm advisor in Northern California (Colusa, Sutter, Yuba and Glenn counties).

Many fields have been treated for stripe rust, according to a report by Schmierer in a weekly California Wheat Growers Commission newsletter.

He said a pest control advisor reported to him he has treated Express, Summit and Cal Rojo for stripe rust. The latter is a new stripe rust resistant variety.

Kent Brittan, UCCE farm advisor in Yolo, Solano and Sacramento counties confirmed what Schmierer found in Cal Rojo. The fields, he said, had “large, developed patches of stripe rust. Leaf symptoms are similar to Summit, light yellow spots developing to large dashes of necrotic tissue; spores in line with the leaf veins.”

Brittan called the find “disconcerting.”

“Stripe rust has hit us pretty hard in the last three out of five years,” said Scriven. “Prices may be high, but when stripe rust knocks yield down to only a ton and a half, high prices do not do much good.”

The goal of the wheat commission is to generate more research funds to tackle the problem. To that end, Scriven and the commission are trying to convince UC to replace retiring small grains specialist Lee Jackson.

“Not replacing Lee would be a great blow to the California wheat industry. Lee did a tremendous job for us, and it will be a big loss not replacing him. We are trying to get the university to reconsider its decision not to replace him,” he added.

Brittan’s mobile phone has been ringing steadily with grower calls due to the increase in wheat prices. Growers are calling about rust and whether they should apply nitrogen, either water run or top dressing, and other wheat production issues.

Growers are contracting wheat two and three years ahead with the current prices being offered. “These prices are pushing tomatoes and hybrid sunflowers around as growers look for places to plant wheat.

Brittan’s counterpart in Tulare County, Steve Wright, said the crop looks good overall in Tulare and Kings counties.

The lack of rainfall in March obviously hurt dryland growers; however, it also caught some irrigated growers with stressed wheat.

“Some growers waited too long to get that first irrigation on, in Kings County especially. Some growers waited for a wet March and it did not happen. Fields suffered.”

About 70 percent of the wheat in Wright’s area is typically chopped for silage for dairies. That may be down 10 percent with higher grain prices.

“A lot of growers have not committed to silage to see where silage prices shake out,” he said. The silage equivalent for grain prices is about $40 per ton for silage, far more than the highest prices paid last year for corn silage.

Wheat is everywhere in his area, said Wright. “There were pastures that had never grown a crop planted to wheat. We had some growers plant wheat between tree row orchards.”

Boyett says his 1,500 acres of wheat looks good, but he is struggling to get around with irrigation water. “Our irrigation district relies totally on wells, and we have limited water supplies to go around after the dry March.

“Wheat takes more water than you’d think. We don’t count on winter rains. Wheat can take 2.5 to three acre feet to make a good crop, only about six inches less than cotton.”

Wheat harvest should begin in late May and there are concerns that there will be enough combines and trucks to get it to storage in a timely manner.

The truck lines at the elevators will likely be as long or longer starting in May 2009. Wheat acreage should be up in both states next season.

However, Edgar said planting seed supplies will be available to meet demand. “Fortunately, the industry found enough seed to plant this year’s crop. We have enough lead time to be pretty well prepared for the 2009 crop,” Edgar said.

Benson is ready. “I remember one year it rained during planting time so I bought a used drill and used crawler just in case I need extra equipment to get the crop in this fall,” Benson said. Anyone familiar with the Imperial Valley would likely chide Benson for his rain insurance decision.

The 85-year average annual rainfall for Imperial Valley is 2.93 inches.

However, like Benson noted, grain prices for next year’s crop are unprecedented and he wants to once again feel like a Kansas farm girl skipping down a yellow brick road to prices skyrocketing somewhere over the rainbow.

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