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Decision time looms for wheat farmers
Published in The Egyptian Gazette on 09 - 08 - 2010

WASHINGTON--Wheat farmers in the US and elsewhere are gearing up to make a crucial bet on the health of the world's grain supplies.
Many farmers must decide within the next few weeks whether to plant more wheat to take advantage of rising prices triggered by the crippling drought in Russia and the nation's export ban.
At the same time, Russian farmers are facing a rapidly closing window. The fate of their 2011 crop rests on whether rain finally falls in time for new plantings to take hold.
The weather and decisions made by farmers throughout the world will have ramifications for the price of wheat and many other commodities. Worries about a shortage already have sent grain prices soaring, threatening a potentially damaging bout of food inflation. But if waves of farmers decide to plant added wheat to take advantage of that threat-and if next year's Russian crop is strong-the balance could quickly tip to a glut, driving prices down and hurting rural economies.
On Monday, an Australian commission warned that a hatching of a huge locust plague with the potential to devastate winter crops, including wheat, in eastern Australia could start as early as next week. Australia usually is a major global supplier of wheat and barley.
Egypt, the world's top importer, said over the weekend that the recent rise in prices could cost it an additional four billion Egyptian pounds, or about $705 million. Cairo also moved to secure other supplies after Russia imposed an export ban, buying 240,000 tons from France on Saturday.
Indonesia, Thailand and other nations already face higher costs for various food items, including sugar and pork, heightening concerns about a return of the civil unrest that accompanied rising food costs in 2008.
Much depends on decisions made by farmers such as Gary Millershaski, who has a 6,000-acre farm in southwestern Kansas, typically the top-producing state in the US, which is the world's largest wheat exporter.
"I'm an opportunist," says Mr. Millershaski, who is deciding whether to ratchet up wheat production. He estimates he could generate almost 1,000 extra bushels by planting land he had planned to keep fallow, which could generate thousands of dollars in extra income.
Similar calculations are being made around the state, the country and the world. Dean Stoskopf, another Kansas farmer, in Hoisington, guessed that about 10% more acres will be planted with wheat in the state than last year.
Russia's crop next year is dependent on the drought breaking. Seeds in the Black Sea region that includes Russia and Ukraine need at least an inch or two of rain in coming weeks, said David Streit, founder of Commodity Weather Group in Bethesda, Md.
But there is little rain in the near-term forecast.
"If you're playing the odds, you've got a tough uphill struggle," Mr. Streit said.
The unfolding global reaction to Russia's export ban makes it hard to predict whether the market for wheat will face a shortage or a surplus. In the short-term, in particular, it isn't clear what governments will do with their existing stocks.
Russia's Deputy Prime Minister Igor Shuvalov has said the government may revise the ban-currently set to run from Aug. 15 until Dec. 31-later this year, depending on the harvest. Meanwhile, the influential grain union is pressing the government to delay the start of the ban until Sept. 1.
And D.P. Singh, president of the All India Grains Exporters Association, estimates that India has around 47 million to 50 million tons of wheat in storage across the country. Mr. Singh sees a good chance that the government will open up to wheat exports in the near future, taking advantage of its stocks and a likely increase in wheat prices.
The high stakes in coming weeks show how thin the margin for error is in the global food supply. The appetites of many nations are growing, and they rely on international trade.
The world got a taste of the consequences with the 2008 food riots, and many governments took steps to increase stockpiles and increase production as a result. The current wheat-market seizure could mark the start of a major test of those fixes.
Russia is facing discontent over its handling of the disaster, and in Malaysia and Thailand there already are rumblings over food prices.
In Thailand, many consumers have been complaining about an unexpected jump in the price of sugar after the country ran low on supplies and had to import the commodity for the first time in 30 years. "Prices of food are higher in every category" since the beginning of this year, says Porntip Uthaichan, a 30-year-old coffee vendor in Bangkok. The cost of sugar, which she uses in the coffee she sells, has shot up about 45% this year, she says, while pork is about 20% more expensive than earlier this year.
Also, the Muslim holy month of Ramadan is set to begin this week, when families increase their food purchases by upward of 25%. That could increase pressure on governments to check price increases. The oil-rich Gulf countries import an estimated 85% to 90% of all basic food goods, according to a recent report by the Arab Organization for Agricultural Development.
The world's farmers must choose with incomplete information about forces that could drive future price swings. Wheat stocks are high, but it isn't clear if key nations will share the bounty. Moreover, if Russia's drought eases by fall, it could produce a strong crop next year, which could turn fears of a shortage into a sudden glut.
"A titanic 2011 US acreage battle is brewing," said Rich Feltes, senior vice president for research at MF Global, a commodities brokerage firm.
In recent years, a move toward ethanol has boosted demand for corn.
US farmers have pulled back from wheat, and the size of the crop shrank 11% in the past two years, to 2.2 billion bushels, according to US Department of Agriculture data.
The number of harvested acres world-wide has also stagnated and was forecast to decline in the coming crop.
Futures prices fell sharply in the financial crisis, from nearly $13 a bushel in early 2008 to around $4.50 a bushel less than 10 months later. In early June, they were trading around $4.28 due to an apparent glut. Prices surged above $7 last week.
On Wednesday, when wheat rose 7%, Mr. Millershaski in Kansas was taking a break from field work to refill the machine that he uses to spread fertilizer, when his father-in-law brought up the idea of planting more wheat than usual this fall. "We're doing the math," he said.


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