Thursday, October 25, 2012

Drought, Congress pushes prices for wheat up

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. 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. 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...more

As if the drought weren't enough, the DC Deep Thinkers are driving the price of corn up, which drives up the price of wheat which drives up...well you get the picture. 

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