Wheat Exporters Compete As Stocks Rise, Prices Drop
CHICAGO — FARMERS in North America may plant fewer acres of spring wheat because subsidized competition in a glutted world market is squashing the price. A worldwide cornucopia of wheat was harvested last summer and fall. Exporters have more to offer but importers need less. That will diminish world trade in wheat by 3 million metric tons during the 1990-91 marketing year, which ends in June, the United States Department of Agriculture (USDA) forecasts. Global stocks are expected to increase by 25 million tons, the first rise in four years.
Hard red winter wheat sells for $120 per metric ton at Gulf of Mexico ports, down from $180 last year. An export subsidy removes an additional $40 to match the world price of about $80 per ton, according the National Association of Wheat Growers (NAWG) in Washington, D.C.
``It's kind of hard to say we hope other countries have crop shortfalls,'' says the association's Karen Fegley, ``even though in the back of our minds we probably do.'' The NAWG represents 50,000 farmers in 20 states.
China's imports will dip by 3 million tons this year, though it expects to return to usual levels next year. The Soviet Union will buy 2.6 million tons less wheat, the USDA says. And the Soviets want the US to match the credit terms other eager sellers are offering.
``We're all just chasing each other down a rathole,'' Ms. Fegley says of exporting nation's competing sales subsidies. A new General Agreement on Tariffs and Trade, under negotiation for four years, is stalled, largely over wide differences between the US and the European Community on farm subsidies.
Last year's eighth-largest purchaser of US wheat, Iraq, was cut off by a UN trade embargo. Once that is lifted, the devastated country will probably shift from being a commercial customer to a recipient of US food aid. Under food aid programs, Fegley says, ``the returns to the farmer would be less.''
The USDA expects foreign sales by the US, the leading wheat exporter, to fall 5 million metric tons short of last year's. US farmers have already reduced by 11 percent their planting of winter wheat, which will be harvested this summer and marketed next year. Winter wheat is 60 to 70 percent of the US wheat crop. Planting of spring wheat began this month in the US. The USDA will report the acreage total next month.
In Canada foreign sales are level with last year - so far. The NAWG is concerned that the volume will rise as Canada seeks to dispose of the extra 7 million metric tons from last fall's record harvest. ``The Canadians have been marketing it [like] gangbusters,'' Fegley says. ``That makes us uneasy.''
Canada exports four of five bushels it grows, making it the No. 2 wheat exporter. And 97 percent of its wheat crop will be planted next month.
Statistics Canada, a government agency, has reported that spring wheat acreage should decline 3 percent, based on a March 1 intentions survey of 12,000 farmers. However, Canadian farmers must weigh a number of factors that could change their plans.
First is the likelihood that the domestic wheat market, which Canadian farmers have had to themselves for decades, will be opened to US competition beginning in May. Already the government wheat-marketing agency has begun lowering domestic prices.
Second is poor planting conditions. Two dry years helped build up nutrients in the soil that, assisted by perfectly timed rains last year, made for last fall's bumper harvest. But last year was still dry on average, says Oliver Code, head of crop reporting at Statistics Canada.
Going into the winter, subsoil moisture was the lowest on record. That argues for idling acreage, Mr. Code says. Farmers will be keeping a close eye on the weather this month as they decide how much wheat to plant.
Third is Canada's new farm subsidy program, called the Gross Revenue Insurance Program. Under GRIP, Canadian wheat farmers would reap US$3.50 per bushel. By contrast, January's price in the US was $2.42, the lowest in nearly two decades. Analysts have speculated that farmers will sow more wheat to obtain the guaranteed price.
Verna Mitura, an economist at the Saskatchewan Wheat Pool, doubts planting will increase. But she adds that ``without GRIP, wheat acreage would have fallen, no doubt about it,'' because of the drought and trade subsidy war.
``There are a fair amount of negative views about GRIP,'' she notes.
Farmers didn't receive key details about the program until after Statistics Canada's survey. They are supposed to sign up by mid-May to participate, but if they do, they will be locked in for four years. The farmers won't really know what they're committing to, though, since the government can alter the program during the first year. That has farmers ``quite upset,'' Ms. Mitura says.
Then there's the fact that subsidy payments will be strung out. Only 30 percent will be paid by the end of 1991, difficult to live with for many farmers with cash-flow problems.
Canadian farmers ``don't see this program saving them,'' Mitura says.