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Gloom over US agriculture is lifting

RUSSIAN WHEAT DEAL

By Staff writer of The Christian Science Monitor / November 20, 1998



ST. LOUIS

American farmers have felt a little too much dj vu lately. This year wheat prices fell to 1980 levels. Corn prices briefly hit a nearly 30-year low.

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So it came as something of a surprise when the latest blast from the past turned out to be good news. The United States has agreed to sell wheat to Russia (and donate other commodities) recalling the Soviet wheat deal that sent grain prices soaring a quarter century ago.

That won't happen this time, analysts say, but it will firm up what have been very soft prices. Meanwhile, cattle prices have rebounded. And one of farmers' most important export markets - Southeast Asia - looks a little less wobbly financially.

The result: The gloom over US agriculture is lifting slightly.

Another piece of good news is higher prices at the barn door won't translate into sticker shock at the grocery store. Consumers may see some rise in prices, but it will be delayed well into next year.

Consumers will feel the biggest pinch in beef prices.

"We're on our way," says James Henderson, market analyst for Cattle-Fax in Englewood, Colo. "Beef production levels should continue to decline as we go into 2000 and 2001 and prices should react accordingly."

Already, ranchers have seen cattle prices rise from a money-losing 56 cents a pound last summer to a break-even 63 cents today, he adds. More hikes are likely. And because the price at the ranch plays a big role in the cost at the retail meat counter, beef prices are likely to go higher.

"It will probably be in the second half of next year," says Jens Knutson, economist of American Meat Institute in Arlington, Va. But "nothing particularly scary."

Beef has to compete against other meats, he points out. And since the number of hogs is rising, pork prices definitely are not. (Thanksgiving dinner cooks can rest easy too. Turkey prices won't rise this holiday season, despite lower numbers, because so many supermarkets sell them at a loss anyway to get customers into their stores.)

The impact of the Russian wheat deal remains harder to predict. In the short term, the US Department of Agriculture forecasts the $625 million aid package to Russia will boost domestic wheat prices 10 cents a bushel. That would nudge wheat up from 11-year lows to about $2.55 a bushel, although still far below the $3.38 and $4.30 farmers averaged in the past two years.

But wheat prices don't affect US consumers much. By the time a loaf of bread or a box of cereal gets processed, packaged, and shipped to the grocery shelf, the actual cost of the grain represents a tiny share of the price.

The long-term outlook for wheat remains uncertain. Big wheat harvests in Argentina and Australia could easily erode the small price increases for American farmers.

IN ITS own way, the current US-Russia deal is as unusual as the original sale that sent wheat prices skyrocketing. In the early '70s, the Soviet Union bought its wheat from the US; now, the US will donate just under half of the 3.1 million-ton commodity package (which includes corn and other grains). Russia is also negotiating with the European Union for just under 2 million tons of food aid, fearful the country will run short this winter.

Back then, the Soviet Union and several other totalitarian governments bought huge amounts of grain and dictated how and where they'd be allocated; today, most of those governments are gone, replaced by private companies that make smaller purchases.

"It's a different world," says Nelson Denlinger, vice president of government programs for US Wheat Associates, a market development group in Washington. "We have very few players that can really move markets these days - certainly not the same way the Russian wheat deal did in the early '70s."

Still, questions remain about how the Russian government will distribute the aid, given its ongoing battle with internal corruption.

According to its agreement, Russia can't sell the American grain abroad. But it reportedly already has exported almost 1.5 million tons of wheat this year, fetching much higher prices abroad than domestically. The Moscow Times reported last week that Russian officials expect to continue selling abroad.

In the US, the boost in wheat prices probably won't help other crops. "We still have to deal with overburdening supplies and a weak export market," says Terry Francl, senior economist of American Farm Bureau Federation in Park Ridge, Ill.

One bright spot is that the Far East - a big market for US grain - no longer seems to be sinking. "It appears that the situation in southeast Asia has at least stabilized," Mr. Francl says.

But the region is importing far less grain than it did a year ago, which won't help prospects for US farmers. "We're probably going to continue to struggle in a narrow [price] range with all our major commodities," he adds.