Assessment of many wheat acreage influences

by Morton Sosland
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Of many long-term problems that ought to have the earnest attention of grain-based foods, few, if any, have more negative consequences than the secular downtrend in acreage devoted to wheat. While it’s inconceivable that production could ever fall short of domestic food needs, the shrinking role of wheat in the annual harvest diminishes the choices American millers and bakers have in this basic ingredient. It is the great breadth of qualities made possible by current outturns that is an important source of strength in every aspect of milling and baking.

Many factors responsible for falling wheat plantings have been discussed here. Thanks to an alert U.S. Department of Agriculture, the Economic Research Service has prepared a telling report under the title, "Consequences of Higher Input Costs and Wheat Prices for U.S. Wheat Producers." The report warns that further reductions in U.S. wheat area are in prospect as long as prices received by farmers do not cover production costs. It points to the way that market price declines this year from the high levels of the previous season have not been matched by similar reductions in cost of inputs.

In analyzing the acreage devoted to wheat, the E.R.S. report, by Mir Ali and Gary Vocke, highly regarded economists, emphasizes the long downward trend. From an annual average of 85 million acres planted in the early 1980s, the area in the past five years dropped by 30 per cent to 59.6 million acres. Plantings for this year’s crop were 58 million acres, down 8 per cent from price-boosted seedings for 2008.

Before delving into the impact of prices falling below input costs, the study cites other important contributors to the slide in wheat that needs understanding. Flexibility introduced by the 1996 farm act, which did away with requiring wheat planting to obtain participation in support programs, receives mention. Further, the Acreage Reduction Program, which attracted nearly a third of the wheat base, may still have a role in influencing relatively large wheat signups in the Conservation Reserve. Changes in crop rotation practices, from wheat being planted every other year to only every third year, have a significant role. Corn and soybeans emerge as more profitable crops in states like Kansas and North Dakota due to genetic improvements that have been much slower to appear, if not non-existent, in wheat. Little or no recent growth in wheat yields per acre has accentuated the attraction of other crops. Not to be forgotten in this litany of negatives for wheat is the lure of ethanol production and its drawing power toward corn and away from wheat. Similarly, wheat has become susceptible to disease outbreaks that influence plantings.

Along with these downward pressure points on wheat planting is this assertion in the E.R.S. study: "If a significant share of U.S. wheat producers are not covering production costs, U.S. planted area will likely continue its long-term decline." From surveys conducted among wheat farmers in 17 major producing states, the E.R.S. came up with market prices that need realizing, first to return production costs and then to cover ownership costs. The latter relate to capital assets, such as equipment and machinery, used during production. This "nut," to use a term applied to the cost of goods, does not include desired returns from land and labor. In the E.R.S. study, the total of all these costs is more than double operating costs alone. An average for all wheat producers, based on an average expected yield, was $2.84 per bushel for operating costs alone, $4.24 when ownership costs are added in, and $5.89 for total costs. The most recent E.R.S. forecast of farm wheat prices in the 2009-10 season is $4.70-$5.70 per bushel, leaving a minimal margin for wheat farmers that would indicate, on this influence alone, the maintenance of the acreage planted to wheat, assuming all else is equal. The problem is that they aren’t equal.

This article can also be found in the digital edition of Milling and Baking News, August 25, 2009, starting on Page 7. Click here to search that archive.

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