Wheat Research Takes Coordinated Effort

Past investment into wheat research has given farmers new wheat varieties, disease and insect resistance and agronomic improvements, plus improved quality for millers and bakers throughout the world. For more than 50 years, Idaho farmers - and other wheat producers from across the nation - have supported research from land-grant universities and the USDA through each state's wheat checkoff program. In the last few decades, however, state and federal dollars towards wheat research have been dramatically reduced, leaving checkoff funds to pick up the slack.

Continued development of wheat varieties and technologies is crucial to the long-term viability of wheat production in the United States, and the effort has gained a boost with the recent entry into wheat variety and technology development by several private firms.

Sorting through research priorities from public and private entities falls at the feet of Jane DeMarchi, director of government affairs for research and technology for the National Association of Wheat Growers. DeMarchi joined NAWG in June, filling a new position dedicated to tracking current research, reviewing funding needs and developing research priorities throughout the entire wheat industry. NAWG has set a goal of increasing wheat yields for U.S. wheat producers at least 20% by 2018; to reach that goal, the collaborative efforts of private and public wheat researchers is necessary.

"We are looking for the private investment to be additive to the overall research picture," DeMarchi says. "We've done a good job of communicating to the technology providers what we'd like to see in future innovation for wheat. We have to make sure that all the research going on right now is directed towards moving the crop forward."

DeMarchi, who spoke to wheat growers at the annual Fall Meeting of NAWG and the U.S. Wheat Associates in Minneapolis last week, says many state wheat commissions have committed to working together on variety development and other research proposals. This is one step toward leveraging research resources; another is to bring the private firms into the fold.

"I do think there is an opportunity for greater collaboration between the researchers themselves or between states on a regional basis, to make sure that money spent is spent as efficiently as possible so that everyone can learn from the research that's being done," DeMarchi says. "We don't need every program doing everything. We need to focus where the best research is being done and then on a regional basis have people being able to take advantage of that."

Research priorities in coming years include the introduction of biotech traits to wheat varieties, an industry-wide effort to solve the Ug99 stem rust disease and continued yield, quality and agronomic improvement of varieties. These efforts require the combined effort of public and private, state and federal researchers and funds.

Cargill CEO Expects U.S. Grain Output to Rise in 2011

Bloomberg reporters Andra Timu and Irina Savu write that the U.S., the world’s largest grain shipper, may increase production next year if weather conditions are favorable as farmers invest in fertilizers and high-quality seeds, Cargill Inc.’s Chief Executive Officer Greg Page said.

The 66 percent gain in corn prices from June lows and a doubling in wheat have bolstered U.S. farm revenue and will spur investment in technologies to increase output, Page said today in an interview from the southern Romanian town of Calarasi.

“Production in 2011 in the U.S., if we have good weather, I would expect it to increase based on the behavior of farmers, which is to purchase more fertilizer and be very careful to use the very best seeds,” Page said.

Rising farm income and spending contrasts with a slowing U.S. economy, where growth eased to an annualized 1.7 percent in the second quarter from 3.7 percent in the previous three months. While agriculture accounts for just 1 percent of the $14.3 trillion economy, the impact of surging prices may be 10 times more once spending on equipment, seeds, grain handling and food production are added, said Jason Henderson, an economist at the Federal Reserve Bank of Kansas City, on Oct. 18.

By contrast, the European Union grain harvest is estimated to fall 4 percent this year to 284.9 million metric tons, the bloc’s weather-monitoring unit said on Oct. 13.

Stable Demand

Grain consumption in Europe will be “quite stable,” Page said. “We have been impressed in many countries with the stability of the world’s diets in 2009 and
2010,” compared with other crisis periods, he said.

Grain prices rose this year as drought in Russia, flooding in Canada and parched fields in Kazakhstan and Europe ruined crops. Russia, once the third-biggest wheat exporter, banned overseas sales in August. Ukraine, the largest barley shipper, said Oct. 12 it would introduce grain quotas. Corn, wheat and soybeans jumped the most allowed by the Chicago Board of Trade on Oct. 8 after the U.S. Department of Agriculture predicted less supply.

“All the statistics are not completely compiled, but that reduction in production in Russia will probably represent far less than 1 percent of the world’s grain production,” Page said. “That small reduction in production has led to an enormous change in price.”

Cargill, the Minnetonka, Minnesota-based grain handler and the largest closely held company in the U.S., said Oct. 12 that its 64 percent stake in Mosaic Co. and farm-price volatility drove a 68 percent gain in profit in the most recent quarter.

Page, speaking at the opening of a grain-storage facility in Calarasi, said Cargill plans to expand its Romanian business and increase working capital at the unit to $100 million by 2015.

Those Amber Waves Are Fueling Exports

Bloomberg Businessweek reporters Whitney McFerron, Jeff Wilson, Shruti Singh and Elizabeth Campbell write that just a few years ago, who would have guessed that farms would turn out to be a bright spot in the U.S. economy? Farmers were fretting about falling prices and mounting competition from Russia and Ukraine. Today drought has withered much of the Russian and Ukrainian crops, and the world needs more grain—and soybeans and pork—than ever. The best place to get it: the fertile soil of the U.S. Midwest and South, home to some of the most productive farms on earth.

In the first eight months of 2010, U.S. agricultural exports increased 14 percent, to $69.8 billion, from the same period a year earlier, according to the most recent U.S. Agriculture Dept. data. Joseph Glauber, chief economist for the USDA, says farm exports in the year that began on Oct. 1 may top the 2008 record.

This cornucopia is providing an unexpected boost to President Barack Obama's drive to double exports by 2015. China's need for cotton, pork, corn, and soybeans will make it the second-biggest U.S. agricultural trading partner in 2011, the USDA estimates. Shipments of farm products to China will total $15 billion, compared with Canada's $16.8 billion and Mexico's $14.6 billion. Corn prices are up over 60 percent since June, while wheat as much as doubled. "It's going to be the best year American farmers have had in two and a half decades," says Dennis Gartman, an economist and editor of The Gartman Letter in Suffolk, Va.

The cash that farmers are fingering in their pockets is boosting companies at home as well. While agriculture accounts for just 1 percent of the $14.3 trillion U.S. economy, the actual impact of surging prices may be 10 times more once spending on equipment, seeds, grain handling, and food processing is added, says Jason Henderson, an economist at the Federal Reserve Bank of Kansas City.

Sales of farm equipment are correlated to growers' cash receipts, which should increase 24 percent, to $118.4 billion, for major crops in the 2010-11 season, Ann Duignan, an analyst at JPMorgan Chase (JPM) in New York, said in an Oct. 8 report. That's good news for Moline (Ill.)-based Deere (DE), the world's largest farm-equipment maker as well as rivals Amsterdam-based CNH Global (CNH) and Duluth (Ga.)-based Agco (AGCO), she says.

Deere's per-share profit will more than double, to $4.25, in the current fiscal year, according to the mean estimate of eight analysts surveyed by Bloomberg. Cargill, the giant grain handler and food processor, said on Oct. 12 that thanks to price volatility and the performance of its affiliate, fertilizer producer Mosaic (MOS), profit for the latest quarter rose 68 percent.

Back in the 1980s, falling prices, record-high interest rates, and too much farmland bought on credit prompted a wave of farm bankruptcies. Now low interest rates are amplifying the boom, says Tom Neher, vice-president for AgStar Financial in Rochester, Minn. The bank issued twice as many farm-equipment loans as expected in a recent promotion. "I've seen more brand-new combines bought than I've seen for a long, long time," says Neher, who helps manage $2.1 billion in grain-related loans and leases for AgStar. "When you can get a machinery loan for 4 percent interest, that's about as low as it ever gets."

There are limits to how much cash will trickle down to the Main Streets of rural America, says Ernie Goss, an economics professor at Creighton University in Omaha: "You have fewer and fewer farms, and fewer and fewer farm families, so it hasn't spilled into small businesses like the drugstore or the shoe store." Farm prices have been supported by a lower dollar, which boosts exports, and not by rising domestic demand, says Goss. Small businesses "are mystified by all these reports about how wonderful the rural economy is. That's because they're selling in Greeley, Neb., and the farmer out there is selling in Beijing."

Still, the mix of foreign demand and a weak dollar is the best news farm country has had for decades. "It is a perfect situation for U.S. farmers, the best since the early 1970s," says Bill Adams, a trader at ACT Currency Partner, a currency and commodity specialist in Zurich. "There will be quite a few Cadillacs sold in the Midwest this Christmas."

The bottom line: Farm exports from the U.S. are rising fast. That's benefiting farm-equipment makers, fertilizer companies, and other suppliers.

Grainy Season: Engineering Drought-Resistant Wheat

NPR's Dan Charles reports that wheat prices spiked this past summer as a record drought and heat wave wreaked havoc on Russia and ruined one fourth of the country's crops. Russian Prime Minister Vladimir Putin ordered a ban on exports of Russian grain. A self-propelled combine harvests a field in a village south of Moscow on Aug. 15.

Last summer's drought in Russia pushed wheat prices to their highest levels in years, and the fallout is a reminder of how much humanity depends on the rain. Now, scientists are searching for novel approaches to make wheat less vulnerable to drought.

Some efforts are trying to replace the genes that made possible the dramatic boost in wheat harvests in the latter half of the 20th century in India known as the Green Revolution.

Few people can see the accomplishments of the Green Revolution more clearly than Kulvinder Gill, who grew up in a village in India where, half a century ago, some predicted catastrophe because food production wasn't growing as fast as the population. "It was a common belief that this world is going to end because of the starvation," Gill said. "People are going to fight for food and kill each other."

But scientists such as Orville Vogel at Washington State University bred new varieties of wheat that included a mutant gene that kept the plant short. When you gave these plants lots of fertilizer and irrigated them, they didn't just get tall and fall over like ordinary wheat — they produced more grain. A lot more.

"These dwarfing genes came and almost tripled yields, at least in Punjab area," Gill said.

So Gill left his village in Punjab and became a wheat geneticist. He now occupies the Orville Vogel Endowed Chair in wheat breeding at Washington State.

Searching For A New Wheat Gene

And he's hoping to not only repeat what Vogel did, but improve on it. That's because the dwarfing genes of the green revolution — which are now in 90 percent of all the wheat that farmers grow around the world — have an unfortunate side effect, he says: They make it harder for the plant to thrive when water is scarce.

For instance, when it's dry, farmers have to plant seeds deeper because that's where the moisture is. "And these semi-dwarfs don't do too good pushing out of 6 inches of soil," Gill says.

So he's now on the hunt for a different and better dwarfing gene. He knows exactly what he's looking for: It's a mutation that already exists in corn and sorghum. It doesn't shrink the whole plant the way the green revolution genes do. Instead, it blocks the normal flow of a crucial growth hormone.

"So the plant reduces in height, but at the same time, the cob is bigger, the stem is thicker and stronger, and the plant looks great," Gill says.

To create this kind of wheat plant, Gill and a group of collaborators have treated thousands of seeds with a chemical that makes random changes in DNA. Now these mutant wheat plants are growing in the greenhouse, and Gill has to see if any of them have the one change he wants.

"It is very difficult to know at this point if the mutant is the one — the kind we are looking for," he says.

A Global Effort To Reprogram Crops

Gill's project is just one small part of a global campaign to reprogram crops genetically so they can survive water shortages. People are trying everything from low-tech traditional crop breeding to high-tech gene splicing.

One approach, somewhere in the middle, involves looking for useful genes in wheat's ancestors. Scientists are retrieving seeds from the refrigerated vaults of gene banks and taking a fresh look at those plants. Thousands of years ago, three of them somehow combined in the wild to form modern wheat.

David Bonnet, a wheat geneticist at the International Maize and Wheat Improvement Center based in Mexico, says scientists can re-create that merger in the laboratory.

"So we can go back and bring in more genetic variation for a whole range of traits, but certainly drought tolerance is one of them," Bonnet says.

But the approach that's getting most of the attention and most of the money these days is genetic engineering.

Agricultural giant Monsanto has inserted a gene from bacteria into corn and it says this variety yields 8 to 10 percent more under drought conditions. The gene is called a transcription factor — a kind of master gene that activates many others when the plant is under stress.

The company says if it gets a green light from regulators, it will start selling the corn within two years. Monsanto has also donated the gene to a group of government-supported research institutions in Africa that are starting greenhouse trials of corn-containing the gene this year.

The Potential Of Genetic Enhancement

In the scientific community, there's a lot of curiosity about the Monsanto product and some skepticism that it will work as advertised.

But many of them, including Mahyco, a leading seed company in India, also are looking for genes to splice into crops.

"In our program, we are looking at transcription factors from drought-tolerant crops — sorghum, acacia trees or other crops that are known to be drought-tolerant," says Usha Zehr, Mahyco's chief technology officer.

And geneticist Bonnet says there's no shortage of genes that seem like they might possibly help a plant use water more efficiently.

"We have access to quite a lot of candidates ourselves, and we think they have as much or more potential as what Monsanto has," he says.

Actually realizing that potential may become increasingly important as the globe warms up. Climate models predict that many parts of the world — including major crop-growing areas — will see more droughts in the coming years.

Tight Corn Supplies Drive Wheat Prices Higher

Chad Weigand, USW Market Analyst reports in the recently released Wheat Letter that "Back in the July 21 issue of Wheat Letter, we wrote about world wheat prices surging with news of the Russian drought. We also suggested that it would be a good idea for wheat buyers to watch the corn market, noting that the run-up in wheat futures actually began after the U.S. Department of Agriculture (USDA) reported a tightening in corn stocks. An additional decrease in corn stocks from any future weather issues or continued demand growth from China could push corn prices higher and pull wheat along with it,” we said.

USDA’s corn market assessment in its Oct. 8 World Agricultural Supply and Demand Estimates (WASDE) has had exactly that effect on wheat prices. USDA surprised the trade by projecting 2010/11 U.S. corn ending stocks at 22.9 million metric tons (MMT), falling well below average trade estimates of 29.2 MMT. If realized, this would be a 47 percent decline from last year and the lowest level since 1996/97. Global ending stocks are also expected to decline, falling 11 percent from last year to 132 MMT. With the ever-growing corn demand projected at a record 835 MMT, the global stocks-to-use ratio stands at 16 percent, the second lowest level since 1974/75. The stock situation in the U.S., which accounts for roughly 40 percent of global output, is especially tight. USDA projects the U.S. corn stocks-to-use ratio at eight percent, the second lowest level on record.

The bullish reaction in corn has spilled over into wheat, a market that was already factoring in increased overseas demand for U.S. wheat. Corn supply and demand remains a major factor for wheat. In its daily “Commodity News for Tomorrow,” CME yesterday quoted an analyst saying, "The only reason that wheat is up is because corn is up. We don't have a shortage of wheat." Between the WASDE report on Oct. 8 and Oct. 20, corn futures prices climbed 12 percent to $5.73/bu and wheat gained nearly five percent. The CBOT December wheat contract closed at $6.83/bu yesterday. The spread between corn and wheat in the U.S. cash markets is even tighter. While feed demand for wheat could increase locally, if the spread stays narrow up to corn planting time in 2011, the long-term competition for acres between corn and wheat would take on more weight.

Writing for World Perspectives, Inc., this week, analyst Mike Krueger estimated that 2011 corn planted area will have to reach 95 million acres (38 million hectares), assuming a yield of 160 bushels per acre (about 10 metric tons per hectare), if U.S. ending stocks are to reach a more comfortable level of 33.0 MMT. This would translate to the largest corn planted area since 1944 and increase the chance that the 2011/12 and 2012/13 wheat crops will lose planted area to corn. Krueger is President of The Money Farm, a grain marketing advisory firm based in Fargo, ND.

Idaho’s All Wheat Production Up from 2009

All wheat production in Idaho is up 9 percent from 2009 to 108 million bushels. The winter wheat yield, at 82.0 bushels per acre, is up 1.0 bushel from last year. Winter wheat production totals 58.2 million bushels from 710,000 harvested acres, up 3 percent from last year’s 56.7 million bushels.

The 2010 winter wheat production is estimated to be 76 percent white and 24 percent hard red. Spring wheat yield, at 79.0 bushels per acre, is up 2.0 bushels from a year ago. Idaho’s spring wheat production totals 48.6 million bushels from 615,000 harvested acres, up 19 percent from 2009’s 40.8 million bushels.

The spring wheat crop is estimated to be 50 percent white and 50 percent hard red. Yield for durum wheat is estimated to be 65.0 bushels per acre, down 16.0 bushels from last year. Durum wheat production in Idaho totals 1.30 million bushels from 20,000 harvested acres, down 320 thousand bushels from last year.

IGPA Leader Chosen for Prestigious National Program

Idaho Grain Producers Association (IGPA) member of the Board of Directors, Robert Blair, was recently named as an Agriculture Fellow for the prestigious Eisenhower Fellowship program.

Blair was chosen as one of two farmers from a competitive nationwide pool of applicants for the 2011 program chaired by retired U.S. General Colin Powell. His work to tout the benefits of precision technology as a new frontier in production agriculture caught the attention of the Eisenhower Fellowship.

Blair, a family farmer from Leland, Idaho, serves as the Nez Perce County representative on the IGPA Board of Directors and chairs the Congressional, Legislative, Tax and Transportation Committee.

“The IGPA is extremely proud, but not surprised, of Robert’s selection”, said IGPA President Scott Brown. “Robert follows in the footsteps of IGPA past President Duane Grant who was also selected for this great program. We are fortunate to have such talented leadership among Idaho’s wheat and barley farmers.”

The stated goal of the Eisenhower Fellowship is to “engage emerging leaders from around the world to enhance their professional capabilities, broaden their contacts, deepen their perspectives, and unite them in a diverse, global community”.

Blair and the other selectees will travel on a 4-5 week individualized professional program to meet leaders in agriculture and related fields. Robert’s specific mission will be to engage and exchange ideas with South American nations regarding the benefits of precision agriculture.

For more information, contact the Idaho Grain Producers Association office at (208) 345-0706.

U.S. 2011 wheat carryover down 5% from September

World Grain reports that U.S. wheat carryover on June 1, 2011, was projected at 853 million bushels, down 49 million bushels, or 5%, from 902 million bushels forecast in September and down 123 million bushels, or 13%, from 976 million bushels in 2010, the U.S. Department of Agriculture (USDA) said in its Oct. 8 World Agricultural Supply and Demand Estimates.

U.S. all-wheat production was projected at 2.224 billion bushels for 2010-11, down 41 million bushels, or 2%, from September but up 6 million bushels from 2.218 billion bushels a year earlier. Total wheat supply was projected at 3.299 billion bushels, down 39 million bushels, or 1%, from September but up 306 million bushels, or 10%, from 2.993 billion bushels in 2009-10, the USDA said.

Exports of U.S. wheat for 2010-11 were projected at 1.25 billion bushels, unchanged from September but up 369 million bushels, or 42%, from 881 million bushels in 2009-10.

The USDA projected domestic food use of U.S. wheat in 2010-11 at 940 million bushels, unchanged from September but up 23 million bushels, or 3%, from 917 million bushels in 2009-10, and seed use at 76 million bushels, also unchanged from September but up 7 million bushels from 69 million bushels last year. Feed and residual use was projected at 180 million bushels, up 10 million bushels, or 6%, from September and up 30 million bushels, or 20%, from 150 million bushels in 2009-10. Total use was projected at 2.446 billion bushels, up 10 million from September and up 428 million bushels, or 21%, from 2.018 billion bushels in 2009-10.

The average farm price of U.S. wheat in 2010-11 was projected to fall in a range of $5.20-$5.80 a bushels, up from $4.95-$5.65 in September and compared with $4.87 a bushel in 2009-10 and $6.78 a bushel in 2008-09.

On a by-class basis, the USDA projected June 1, 2011 carryover of hard winter wheat at 338 million bushels, down 11 million bushels from September and down 47 million bushels from 385 million bushels in 2010. Soft red winter wheat carryover was projected at 158 million bushels, down 21 million bushels from September and down 84 million bushels, or 35%, from 242 million bushels in 2010.

Hard spring wheat carryover on June 1, 2011 was projected at 232 million bushels, down 17 million bushels from September and down 2 million bushels from 2010.

White wheat carryover was projected at 88 million bushels in 2011, up 2 million bushels from September and up 8 million bushels from 80 million bushels in 2010.

Durum carryover on June 1, 2011 was projected at 37 million bushels, down 2 million bushels from September but up 2 million bushels from 2010.

Global 2010-11 wheat production was projected at 641.44 million tonnes, down 1.57 million tonnes from September and down 40.71 million tonnes, or 6%, from 682.15 million tonnes the previous year. Global wheat use was projected at 663.31 million tonnes, up 2.12 million tonnes from September and up 12.35 million tonnes, or 2%, from 650.96 million tonnes in 2009-10. World exports were projected at 126.23 million tonnes, up 200,000 tonnes from 126.03 million tonnes in September but down 9.09 million tonnes, or 7%, from 135.32 million tonnes in the prior year. World wheat ending stocks for 2010-11 were projected at 174.66 million tonnes, down 3.13 million tonnes from September and down 21.87 million tonnes, or 11%, from 196.53 million tonnes in 2009-10.

"Global wheat supplies for 2010-11 are projected 1 million tonnes lower, mostly reflecting lower production in the United States," the USDA said.

Alan Guebert: Gravest strategic issue you never heard of

Before anyone smiles too broadly about today's grain prices, they might want to take a peek at fertilizer prices. If so, they'll discover, as DTN reporter Russ Quinn recently did, that the only price rising faster than either corn or wheat's is fertilizer.

“Six fertilizers have seen double-digit increases in price compared to one year earlier,” noted Quinn on Sept. 21. “Leading the (way) higher is DAP, which is up 48 percent, followed by anhydrous at 47 percent, MAP at 43 percent, UAN28 at 37 percent, UAN32 at 26 percent, 10-34-0 at 15 percent and urea at 10 percent.”

While no one is forecasting a return to the smash-mouth prices – $1,200 anhydrous and $1,000 potash – seen in 2008, the last high-grain price year, no one has ruled 'em out, either. After all, higher grain prices seem to breed higher fertilizer prices like tougher times seem to breed more bank robbers.

There are, however, two reasons for today's upward prices. First, rising demand because of previous cutbacks (largely due to those lunar, 2008 prices) and two years of wet weather that has washed most fertilizer reserves down the creek is kicking up demand, squeezing supplies and fueling prices.

The second factor is ever more basic: cartels. Like crude oil or water, fertilizer is increasingly a “name-your-price” game where a handful of super ag Big Boys control production, marketing and, to a great extent, pricing.

Four weeks ago this space examined the $38.6 billion hostile takeover attempt of Potash Corp. of Saskatchewan, Inc., a Canada-based firm that controls 30 percent of the world's potash production, by BHP Billiton. The deal remains in limbo.

While the wooing continues, though, BHP continues to claim that if it wins Potash it takes the firm out of Canpotex, the cozy export cartel between Potash and its two biggest North American competitors, Mosaic, a Cargill-run firm, and Agrium.

Think about that for a second. BHP pays $38.6 billion for a company that has a third of the world's potash reserves and a marketing plan – built largely on an export cartel – that has delivered a return on investment of 40 percent or so over the last three years and it's gonna' drop that incredibly profitable formula for something better?

What's better than a 40 percent ROI and an export cartel?

The phosphorus market, that's what, offers C. Robert Taylor, the Alfa Eminent Scholar and an ag economist at Auburn University. Taylor spent most of the past year examining the global phosphorus market and says that it “is the gravest strategic issue facing the United States that you never heard of.”

In short, writes Taylor for the Daily Yonder (http://www.dailyyonder.com), the severity of a phosphorus shortage in the next 20 years – at current usage rates, the U.S. supply “will be exhausted in 15 to 30 years” – might “flip from one that revolves around... oil reserves to one based on who owns, and controls, phosphorus reserves.”

Even more worrisome, notes Taylor, is that Morocco and China hold 60 percent of the world's known phosphorus reserves while the U.S., South Africa and Jordan hold most of the rest. Wisely, though, China, “has imposed a 100-175 percent tariff to curtail phosphorus exports, yet the U.S. continues to export to”– wait for it – “China.”

“Troubling, ain't it?” asks Taylor.

Moreover, “Trade in phosphorus is dominated by three corporations,” he continues, “Mosaic (Cargill), Potash Corporation of Saskatchewan and OCP, a Moroccan-sanctioned, privately traded monopoly.”

Gee, two of the same key players as the potash market. Hmm, maybe BHP wants Potash Corp. more for its phosphorus and that cartel than potash and the other cartel.

Either way, there's little doubt why the fertilizer kings are whacking you with higher prices now: because they can.

Alan Guebert: Phosphorus market: Gravest, strategic U.S. issue you’ve never heard of

Before anyone smiles too broadly about the grain prices, they might want to take a peek at fertilizer prices. If so, they’ll discover, as DTN reporter Russ Quinn recently did, the only price rising faster than either corn or wheat is fertilizer.

“Six fertilizers have seen double-digit increases in price compared to one year earlier,” noted Quinn.

While no one is forecasting a return to the smash-mouth prices — $1,200 anhydrous and $1,000 potash — seen in 2008, no one has ruled ‘em out. After all, higher grain prices seem to breed higher fertilizer prices like tougher times seem to breed more bank robbers.

There are, however, two reasons for today’s upward prices.

First, rising demand because of previous cutbacks (largely due to those lunar 2008 prices), and two years of wet weather that has washed most fertilizer reserves down the creek. Both of these reasons are kicking up demand, squeezing supplies and fueling prices.


The cartels

The second factor is even more basic: cartels.

Like crude oil or water, fertilizer is increasingly a “name-your-price” game where a handful of super ag big boys control production, marketing and, to a great extent, pricing.

Four weeks ago, this space examined the $38.6 billion hostile takeover attempt of Potash Corp. of Saskatchewan, a Canada-based firm that controls 30 percent of the world’s potash production, by BHP Billiton. The deal remains in limbo.

While the wooing continues, BHP continues to claim that, if it wins Potash, it will take the firm out of Canpotex, the cozy export cartel between Potash and its two biggest North American competitors, Mosaic and Agrium.

Think about that for a second. BHP pays $38.6 billion for a company that has a third of the world’s potash reserves and a marketing plan — built largely on an export cartel — that has delivered a return on investment of 40 percent or so over the last three years and it’s gonna’ drop that incredibly profitable formula for something better?

What’s better than a 40 percent rate of investment and an export cartel?


Phosphorus vanishing

The phosphorus market, says C. Robert Taylor, the Alfa Eminent Scholar and an ag economist at Auburn University.

Taylor spent most of the past year examining the global phosphorus market and says that it “is the gravest strategic issue facing the United States that you never heard of.”

The severity of a phosphorus shortage in the next 20 years — at current usage rates, the U.S. supply “will be exhausted in 15 to 30 years” — might change priorities to “flip from one that revolves around… oil reserves to one based on who owns, and controls, phosphorus reserves.”

Even more worrisome, notes Taylor, is that Morocco and China hold 60 percent of the world’s known phosphorus reserves while the U.S., South Africa and Jordan hold most of the rest.

Wisely, China, “has imposed a 100 to 175 percent tariff to curtail phosphorus exports, yet the U.S. continues to export to China. Troubling, ain’t it?” asks Taylor.

Moreover, “Trade in phosphorus is dominated by three corporations,” he continues, “Mosaic (Cargill), Potash Corporation of Saskatchewan and OCP, a Moroccan-sanctioned, privately traded monopoly.”

Gee, two of the same key players as the potash market. Hmm, maybe BHP wants Potash Corp. more for its phosphorus and the cartel than potash and the other cartel.

Either way, there’s little doubt why the fertilizer kings are whacking you with higher prices now: Because they can.

Ukraine imposes quotas for grain exports

Worldgrain reports the government of Ukraine accepted the decree on imposition of quotas for exports of grains from Ukraine in order to support the food security of Ukraine, declared Gregory Kaletnik, the head of the relevant committee on agrarian policy and land relations issues of the Verkhovna Rada of Ukraine, APK-Inform said on Oct. 6.

According to Kaletnik, acceptance of the decree will completely secure the requirements of the country in forages, and provision with bread products.

Market participants also said that the Cabinet accepted the decision on imposition of quotas for grain exports. The government is discussing the order of quotas distribution, including the variant of selling the export rights through auction trading.

Previously Nikholay Azarov, the prime minister of Ukraine, entertained the possibility of imposing a grain export quota system in Ukraine. After receiving the final data on grain stocks, the government planned to make a decision concerning the accepted volumes of grain exports.

Also, during the visit to Japan, Boris Kolesnikov, the vice-prime minister of Ukraine, announced that Ukraine would possibly impose grain export limitations. He said Ukraine should sell the grain export quotas through the auction.

Ag Exports at a Tipping Point

DTN's Marcia Zarley Taylor reports on the precarious world stock situation -- particularly for corn -- could be the norm for global agriculture over the next decade, not the exception, speakers told 600 attendees at the annual Soya and Oilseed Summit being held here this week. But that fine balance between supply and demand spells good news for grain prices long-term and U.S. producers who act as the world's shock absorber in times of scarcity.

The world is used to turning to the U.S. in times of grain shortages and in order to keep fulfilling that role a world-class transport system is necessary. "The world is one short crop away from real tension in supply and demand," said Soren Schroder, CEO of Bunge North America when outlining his five- to 10-year vision for global ag exports and U.S. competitiveness. "God forbid we have one [short crop] in this country."

Not only could global corn stocks reach the tightest levels since 1995-96 this season, but USDA and other experts have consistently underestimated demand for soybeans in four out of the past five years. Some analysts believe that will set the stage for another acreage battle between those crops in 2011, much as it did in 2008.

Earning a reputation as a reliable export supplier sounds obvious, but consistent U.S. grain and soybean production has been critical to food security three times in less than a decade, Schroder added. He cited the U.S.'s ability to fill gaps when drought hit Argentine soybeans last year, Australian wheat in 2007/08 and the latest catastrophic damage to Black Sea wheat production this season. He expects current U.S. corn exports to match the 2007/08 record of 61 million metric tons due to surging global demand and the shortfalls in Former Soviet Union feed wheat supplies.

"The U.S. will increase its share of global exports over the next decade in corn, soybeans and wheat," Schroder said, adding that strains like the Black Sea region's 2010 drought could be the norm given shrinking stock levels globally.

Fueling this demand is that between 2000 and 2030, the world will add 770 million people to the middle class who earn $10 to $20 per day. That's the income segment that will spend more of its budget to improve its diet by consuming more meat, Schroder noted.

Bunge's Schroder expects China to boost net corn imports significantly, perhaps reaching 14 MMT by 2019-2020, up from nothing prior to 2009-2010. But instead of a gradual increase in demand, he sees the country's needs ramping up to possibly 10 MMT "very quickly" between now and 2015. Most of that new demand will need to be filled by the U.S. since its corn technology and infrastructure give it a competitive advantage in moving large volumes of grain to port.

Mike Steenhoek, executive director of the Soy Transportation Coalition, said he feels like "we're attaching a garden hose to a fire hydrant" given the volumes of grain and oilseeds that will be needed to meet world food demand.

At the moment, Americans aren't the world's lowest cost producers at the farm gate, but gain on Brazil and Argentina in low-cost transport, taxes and port handling. For example, Steenhoek says it cost $64.27 per ton to ship soybeans from Davenport, Iowa, to Shanghai, vs. $138.03 per ton from Mato Grosso, Brazil to Shanghai. That gives Americans almost $100 per ton advantage, when other costs are counted.

But no one in the grain industry is taking that advantage for granted. Some road and port improvements in Brazil could shave $30 per ton off Mato Grosso's export cost within the next three years. Meanwhile, parts of that U.S. infrastructure are fraying and in critical need of investment, Schroder and Steenhoek emphasized. More than 1,500 U.S. river barges have been taken out of service in the last decade while trade volumes grew, replaced by more efficient capacity. But the bottleneck is the nation's river locks which average 60 years of age, 10 years beyond their design life. Several on the Ohio River have experienced mechanical failures recently, Steenhoek added.

"The American river system needs investment and lots of it to do what we need it to do in the next 10 years," Schroder said. What's more he sees a need for more storage so both hemispheres can use rail systems year round, rather than congesting traffic just at harvest.

Prices will have to be above the historical average to meet the expected surge in global demand, Schroder added. "There aren't enough stocks on hand to match this growth cycle."

"Everyone feels a little bit on edge. With current stock levels [of corn, wheat and soybeans], we're only one crop away from real price pressure. And the buffer to match demand is getting smaller," Schroder said.

Oregon-Idaho Grains Convention

The Idaho Grain Producers Association (IGPA) and the Oregon Wheat Growers League (OWGL), along with wheat and barley producers from throughout the Pacific Northwest will converge upon the Doubletree Lloyd Center Hotel in Portland, Oregon for this year’s Oregon-Idaho Grains Conference. The theme of the December 1-3 Conference is “Keys to Success – Partnerships, Education and Networking”.

The wheat and barley industries in Idaho and Oregon are undergoing many changes and continual challenges due to a number of issues including: increased input costs, crop insurance reforms, extreme volatility in the global grain marketplace, radical changes to federal farm policy, and increased regulatory pressure on farming operations. These topics among many others will be addressed by a wide variety of top notch speakers.

Keynote speakers for the Conference include:

Jim Miller, USDA Undersecretary for Farm and Foreign Agricultural Services.
Undersecretary Miller oversees the administration and operations of federal farm payment, trade, and crop insurance programs for the U.S. Department of Agriculture. Mr. Miller served as president of the National Association of Wheat Growers (NAWG) in 1987. He will discuss the development of the 2012 Farm Bill and the USDA’s administration of today’s top farm priorities.

U.S. Senator Larry Craig (Ret.), Idaho
With a combined 28 years in the United States Senate and House of Representatives, Senator
Larry Craig became recognized nationally as a voice of common sense advocating for conservative solutions to problems of our nation. A specialist in issues specific to the West, Senator Craig will provide his insight into the congressional elections results, including farm, energy, and environmental policy.

Damian Mason, Humorist & Entertainer
Keying off the theme, “Humor for the Heart of Agriculture”, Damian Mason has been a professional speaker, corporate event entertainer, and author since 1994. Damian brings his quick wit and a willingness to glean humor from all sources.

The public is welcome and encouraged to participate in the Conference. Full and single-day registrations are available. The annual Conference provides a terrific opportunity for the public and the agriculture industry to engage in meaningful dialogue regarding the top issues facing the grain industry.

Conference registration and full details can be accessed at www.idahograin.org or by contacting the IGPA office at (208) 345-0706.

Is it fair for land-grant universities to make deals based on their research?

Columnist Ed Lotterman discusses the history of Land Grant Universities, their research contributions and future funding sources.

Substantial proportions of the cost of running land-grant universities like the University of Idaho still come from state and federal government, although the proportion is dropping in most states. Given this public funding, should these universities give away new technology they develop, or should they commercialize it in a way that maximizes their income?

The land-grant system has been facing that question for well over a decade now, but in the face of further declines in government funding, the issue is increasing in importance. Here in my home state of Minnesota we have what may seem like a brouhaha in a bushel basket over how the university is commercializing a new apple it developed. But it has important implications for the way we pay for and perform research and disseminate new technology in an era where taxpayers are less willing to foot the bill.

The specific issue is that university researchers developed a new apple, the SweeTango, that promises to be a big commercial success just like the Honeycrisp, one of its parent varieties also developed here 35 years ago.

The current controversy stems from the fact that the university signed an exclusive agreement with the state's largest apple grower to commercialize the new apple. That company in turn formed a marketing cooperative of 45 growers in five states and two Canadian provinces to grow and sell it.

Other orchards in the state also can grow the apple, but they face limits on how many they can grow and how they may sell the fruit. Some of these growers have filed a lawsuit alleging the exclusive deal violates federal and state laws and run counter to the historic mission of the agricultural research and extension system.
That system, consisting of land-grant universities, agricultural experiment stations and the federal-state-county cooperative extension service, has added tremendously to the wealth of our country over the past 148 years, belying the now-commonly held but erroneous view that government cannot create wealth.

Framers of the U.S. Constitution recognized that it was important to promote “the progress of science and useful arts” and, in Article 1, Section 1, gave Congress the power to issue patents and copyrights. But 70 years later, it was clear to many that even with these legal incentives to innovation, a free market would not produce economically optimal levels of technology research and dissemination. And so Congress passed the Morrill Act granting federal lands to states to fund colleges of “agriculture and the mechanic arts.” Ongoing federal funding for agricultural research and extension eventually followed.

All this took place before any formal economics of research and technology transfer. But these actions were fully congruent with modern theory. Much scientific research is what economists call a “public good.” That means without government action, it won't be produced in sufficient quantities for an economy to reach optimal efficiency.

This was particularly true for agriculture, because unlike for patentable machinery, it is impossible to keep new varieties of plants or new farming techniques from spreading to everyone. In the 1870s, if Corliss designed a better steam engine or Singer improved the sewing machine, these companies could get patents that allowed them to reap financial benefits from their research and engineering. But before the development of hybrids whose seeds did not reproduce the parent plant, any seed company that developed a new variety of corn would be unable to prevent corn growers from passing seeds from their crop on to other growers.

In any case, government support of agricultural research and extension fostered productivity growth that greatly aided overall economic growth in our country, just as it is doing for Brazil right now. Federal and state funds supported teaching, research and extension with new technology made available to all at no cost.
When we finally got around to funding basic and applied research in physics, chemistry and other fields, largely as a result of World War II, the Cold War and the space race, we found this also boosted productivity and economic growth. So did government funding of biomedical research. Our economy would have grown faster if we had started such government funding earlier.

But things have changed. We no longer are willing to fund many sorts of research at past levels. Some of this is justified by changed circumstances. Once corn was hybridized, farmers could not save their own seed for replanting; the private sector took over much corn breeding because it could charge enough for superior varieties to recoup research costs. The same is true for some genetically modified plants. But taxpayer reluctance to support the effort is another reason for the funding cuts.

This puts land-grant universities in a bind. The local university has more than a century of experience developing fruit varieties for cold regions. No private company matches that, and it's unlikely a private firm would spring up to tackle the task if the university terminated its program. The same is true for its research on wheat diseases and myriad other problems.

Changes in patent law allow developers of plant varieties to charge users for improved genetics. But once public institutions that still receive state and federal funds start to charge for technology they produce, questions of fairness inevitably arise that would not apply in transactions between two private companies.

USDA Announces 2011 Projected Crop Prices

Growers who will purchase crop insurance for the 2011 planting season now know their basic level of coverage.

The USDA Risk Management Agency has announced the 2011 projected price for winter wheat and barley, fall canola and rapeseed and the Malting Barley Additional Value Price.

Winter wheat is projected at $7.12 a bushel. Winter barley is projected at $3.91 a bushel. Fall canola is projected at $0.183 per pound. Fall rapeseed is projected at $0.208 per pound.

Local Wheat Prices Mixed This Week

Local wheat prices were mixed this week: SWW ranged from 10 cents lower to 10 cents higher; HRW ranged from 16 cents lower to 2 cents higher; and DNS ranged from 3 to 36cents higher.

U.S. wheat export sales last week for MY 2010/11 were well above trade expectations at 950.3 TMT, but were offset by a 490.5 TMT cancellation for MY 2011/12. Current marketing year sales were up 96% from the previous week and 7% from the prior 4-week average. Export shipments last week totaled 918.6 TMT, up 5% from the previous week and 40% from the previous 4-week average.

The EU approved 527 TMT of wheat export licenses this week, bringing their cumulative wheat export licenses for the marketing year to 5.3 MMT, compared to 4.2 MMT for the same period last year. Some traders are speculating that EU may be sold out of milling quality wheat stocks by the end of December.

The Buenos Aires Grain Exchange has pegged Argentine wheat production at 7.9 MMT, due to current dry conditions, compared to USDA’s current estimate of 12 MMT. Egypt purchased 220 TMT of hard wheat from the U.S. this week.

Exporter Wheat Supplies Meet Global Demand, But Prices Surge

Wheat stocks in traditional exporter countries, (Argentina, Australia, Canada, EU and the United States), while lower than last year, are still the second highest in 5years. Ending stocks are larger this month for several reasons; 1) expanded supplies in Canada, and 2) quality deterioration in the EU means fewer exports but higher wheat prices increase domestic substitution of other grains in feeding. On the other hand, stocks are expected to decline 1.4 million tons in the United States due to increased export demand.

Wheat prices have surged 65 percent since the beginning of July, driven mostly by market uncertainty over supplies from the Black Sea region. The wheat crops in both Russia and Kazakhstan have been devastated by drought, while the crop in Ukraine also suffered from adverse weather conditions. Russia’s export ban and Ukraine’s export slow-down, combined with production shortfalls, have created uncertainty and contributed to market volatility. However, prices are still well below the record average price of $368/ton, reached in 2007/08.