Wheat is los­ing out to more-prof­itable corn and soy­beans

Amer­ica loses its No. 1 place among wheat ex­porters “Tech­nol­ogy has im­proved for corn and soy­beans”

Bloomberg Businessweek (Asia) - - CONTENTS - Alan Bjerga

Paul Pen­ner’s win­ter wheat is pok­ing through as the weather warms in Kansas, a state where the grain is part of the mythol­ogy. He grows about 300 acres of it and says prof­its de­pend on global mar­kets. About two-fifths of the U.S. crop goes abroad, ac­cord­ing to the De­part­ment of Agri­cul­ture.

While ex­ports are im­por­tant to U.S. farm­ers, U.S. grain has be­come less im­por­tant to the world. A stronger dol­lar is mak­ing Amer­i­can wheat less

com­pet­i­tive, and the U.S. may fall to third place among wheat ex­porters this year, be­hind Rus­sia and Canada. In 2014, the U.S. was the No. 1 ex­porter. Wheat-sown acreage in the U.S. has fallen steadily for decades. Over time, that’s given U.S. wheat less sway over global mar­kets. The re­sult is a changed land­scape for farm­ers like Pen­ner—an ex-pres­i­dent of the Na­tional As­so­ci­a­tion of Wheat Grow­ers who this year plans to plant as much corn as wheat. “Peo­ple are vot­ing with their pock­et­books,” says Pen­ner, whose 660 acres are about 50 miles north of Wi­chita. In the 1970s, 90 per­cent of what he planted was wheat. “Our prod­uct re­mains very high­qual­ity, but tech­nol­ogy has im­proved for corn and soy­beans. When you look at where you can make money, wheat is a less at­trac­tive choice.”

U.S. wheat ex­ports are pro­jected to drop 9.3 per­cent this year, to 21.1 mil­lion met­ric tons, in the sea­son end­ing May 31. That’s the low­est since 1972, govern­ment data show. Stored do­mes­tic wheat, at a five-year high, dis­cour­ages plant­ing. Acreage for win­ter wheat fell to the sec­ond-low­est since 1913, ac­cord­ing to the Agri­cul­ture De­part­ment.

Ukraine and Rus­sia’s Black Sea re­gion boast some of the best land for wheat. Czarist Rus­sia was the world’s top ship­per. By 1972, how­ever, wheat pro­duc­tion had fallen so far be­cause of com­mu­nist mis­man­age­ment that the Soviet Union had to buy from Amer­ica.

To­day, Rus­sia is again the No. 1 ex­porter, while Ukraine is in fifth place. They’re swal­low­ing the Mid­dle East­ern mar­kets, once Amer­i­can wheat’s top des­ti­na­tion. The weather in Canada, the sec­ond-big­gest ex­porter, has got­ten warmer, re­sult­ing in longer grow­ing sea­sons and bumper crops. Ar­gentina, Aus­tralia, France, Ger­many, Kaza­khstan, and play­ers in East­ern Europe are step­ping up ship­ments.

The re­sult is an end to clear U.S. lead­er­ship in global mar­kets, says Alan Tracy, pres­i­dent of U.S. Wheat As­so­ci­ates, the in­dus­try’s ex­port pro­mo­tion arm. “We’re no longer go­ing to lead in vol­ume ev­ery year,” he says. “The sav­ing grace for us is that to­tal global wheat trade has in­creased, and we can still sell plenty of what our farm­ers pro­duce.”

Wheat lost some of its ap­peal for U.S. farm­ers be­cause the grain has missed out on both the biotech and bio­fu­els rev­o­lu­tions that have made corn and soy­beans the pre­em­i­nent crops. From 1990, the last time wheat acreage topped corn, to this year’s fore­cast crop, wheat plant­ings fell 36 per­cent, to 49.6 mil­lion acres. Corn rose 26 per­cent, to 93.6 mil­lion acres, and soy­beans in­creased 42 per­cent, to 82.2 mil­lion acres.

Al­most all corn and soy in the U.S. since the late 1990s has been ge­net­i­cally mod­i­fied (GM) to bet­ter com­bat pests and weather stress. The re­sult is a boost in yields (bushels per acre) and prof­its. GM crops need less wa­ter, ex­pand­ing the range for wheat’s ri­vals to drier re­gions in the North and West.

Wheat can be ge­net­i­cally mod­i­fied, too. But con­sumers don’t want to eat sta­ples such as bread that are based on ge­net­i­cally mod­i­fied or­gan­isms (GMOs), and biotech wheat hasn’t been ap­proved for com­mer­cial sale any­where in the world. That ban has pre­vented con­tro­versy but has also kept yields stag­nant. “The wheat in­dus­try never wanted GMOs, be­cause they wor­ried about how con­sumers would re­act,” says Allen Feather­stone, an agri­cul­tural econ­o­mist at Kansas State Univer­sity in Man­hat­tan. “You can see over time how it made farm­ers turn to other crops.”

Qual­ity U.S. wheat still com­mands a dol­lar a bushel more than ri­val wheat. “We’re not sell­ing a com­mod­ity so much as we’re sell­ing an in­gre­di­ent” that bakes bet­ter in cook­ies, cakes, and high-qual­ity breads, says U.S. Wheat As­so­ci­ates’ Tracy.

While GMO adop­tion re­mains

con­tro­ver­sial, wheat lob­by­ists are call­ing for more fed­eral re­search fund­ing, as farm­ers and uni­ver­si­ties rec­og­nize that yields must in­crease. Nige­ria and In­done­sia, with their fast-grow­ing mar­kets, are be­com­ing big buy­ers of Amer­i­can wheat, and the re­li­a­bil­ity of U.S. agri­cul­ture is a sell­ing point. A Rus­sian drought in 2010 trig­gered an ex­port ban, lead­ing to bread ri­ots in Egypt and the Arab Spring in 2011.

Wheat will al­ways be grown in re­gions that are too dry or cold for soy­beans and corn, and the U.S. will re­main a ma­jor ex­porter. But that doesn’t mean the in­dus­try can con­tinue on the same path, Pen­ner says. “There’s a point at which we won’t be able to re­cover. I don’t think we’re at that point, but the com­pe­ti­tion is only go­ing to get bet­ter.”

The bot­tom line The strong dol­lar, cli­mate change, ris­ing com­pe­ti­tion, and stag­nant yields have top­pled the U.S. from the top spot in wheat.

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