Below break even: What wheat prices mean for Central Montana

Jenny Gessaman
A combine comes toward the camera, mowing down mature heads of wheat.

Lewistown News-Argus file photo.

The word around the prairie is that grain prices are low, but that bit of gossip may not mean much if you’re not a farmer. Yet, wheat plays a major part in Central Montana agriculture and culture.

The situation, translated
Fergus County MSU Extension Agent Darren Crawford summarized wheat prices in one sentence.

“Pretty much no matter what you do with wheat right now, it isn’t covering costs,” he said.

Wheat markets are not an explicit part of Crawford’s job description, but he is required to spend part of his time on production agriculture. That includes answering any questions a farmer may have, including those about wheat prices.

“My job is to provide unbiased, research-based information,” Crawford explained.

Because he knows he will field questions from local ag producers, he keeps tabs on the markets. Right now, wheat prices are not ideal. What explaining why, Crawford encouraged people to think broad.

“Often times, we have to think outside our own community, outside our own state and even outside our own country,” he said.

Crawford broke the situation down in terms of supply and demand.

“Worldwide, right now, we have a lot of wheat out there,” he said, referring to international buyers.

Crawford translated this as a lower demand. At the same time, he considered the supply, at least locally: Some farmers were reporting exceptional harvests. So while demand is lower, the supply is slightly higher. The combination, according to Crawford, creates low prices.

“So if I’m looking to buy wheat, and look, everyone has a full bin, I under bid,” he said.

So how low can you go?
Low prices are a problem, Crawford said, because at the heart of every farm is a business. Farmers, like everyone else, need the sale price to equal or exceed the money they spent producing a product, or there is no profit.

Farmers’ input costs are large, according to Crawford. A basic Google search reveals combines, common in Central Montana, can run from $400,000 to $600,000, and that’s just one piece of equipment.

Because of the money involved, Crawford said most farms run on operating loans. These loans are taken out at the beginning of planting to cover necessities: seed, fuel, fertilizer. The idea is whatever grows will cover those costs when harvested, with anything more being profit for the farmer.

Low prices ruin that idea, Crawford said, comparing the basic principle to car or mortgage payments.

“Even when I have a terrible month, the bank still wants a minimum payment,” he said.

However, bad prices do not equal the end of a farm.

“Bankers, by and large, understand there are years like this, so they’re going to work with farmers to make this function,” Crawford said.

He added farmers are not blindsided by low prices, either.

“Farmers generally try in the good years to be putting money away or paying their loans,” he said.

Crawford also pointed to government programs and crop insurance, all available to prevent the break-even price from becoming the breaking point.

Buckling down
Crawford does not see the current price slump as big threat to the majority of farms right now.

“Certainly, for most of our farmers this hasn’t been going on long enough to threaten established farms,” he said.

The farmers do not have to sell wheat at low prices, either, especially if they can keep the product dry and bug free.

“Wheat stores for a long time, you could almost say indefinitely,” Crawford said.

Crawford also mentioned “substitutability:” the ability to use one grain instead of another, based mostly on price. For example, if wheat is cheaper than corn, ranchers could buy it to feed cows.

“Farmers are generally very innovative,” he said. “They find ways to market crops, to store them.”

The first step for many, though, will be a slimmer budget.

“Compared to the last eight years, yeah, we’re probably going to have to tighten our belt,” said Bing VonBergen, Moccasin wheat farmer for almost four decades.

“In the last eight years, there’s been a lot of new paint on farms, a lot of equipment replaced that needed to be replaced.”

Farmers’ neighbors will see that change, according to VonBergen.

“Montana historically has a lot of on-farm storage compared to other states,” he said. “I think you’ll see most of farmers’ bins will be full.”

VonBergen predicted the Central Montana landscape might change a little, too. Low wheat prices could encourage farmers to plant other crops in search of profit.

“You’re going to see wheat acres drop down, worldwide,” he said.

But, like Crawford, VonBergen does not see low dollar amounts ending the crop’s future in Montana.

“We’ll all weather this storm, we just have to be prepared for peaks and valleys,” he said.

Hard numbers
According to the USDA:

• Montana planted 5,520,000 acres of wheat last year. Fergus County planted 174,100 acres.

• In 2015, wheat crops were three of the five top crops in the state.

• Farmers plan to plant roughly 1 million fewer acres of wheat in 2016 than they did in 2014.



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