Under the Agridome

“Poverty Grass” Economics: Wheat Harvest Ramps Up in Ontario

Thursday, July 21st, 2016

Lexion wheat Jpeg
I am harvesting one of my better wheat crops of my career.  In 2015 I did not have any wheat on my farm, as the fall of 2014 was very difficult to get anything planted.  So as a calendar turned over into November 2014 I gave up the hope of planting wheat for that fall.  I knew it meant solid corn and soybeans in 2015, but sometimes that’s the way it goes.  Then came along the tremendous open fall of 2015 and I was able to plant wheat early and in great conditions.  That was part of the reason at least in the Dresden Ontario area we have record wheat yields this year.

It just so happens that we had rain at the right time too.  Yes, crops have been burning up across Ontario and wheat has taken that bullet in many areas.  We did get some rain this past week in Ontario but that was essentially too late for the wheat crop.  Needless to say, at least in the deep south west of Ontario, yields have been surprisingly good.

Of course nobody wants to talk about wheat prices.  In Ontario at the moment wheat is valued at approximately $4.80 a bushel.  That is considered quite low especially when you have Chicago wheat contract at their lows.  Your loyal scribe had a marketing order in all winter for $6, but it didn’t hit.  Of course the Canadian dollar in the 76 and $.77 range makes those price optics a lot better.  Our American friends who grow wheat are seeing some of the lowest prices in years.  You can make an argument it doesn’t make sense to growing wheat.

Don’t think that I haven’t thought that.  Last year I asked one of the leading farmers in my local area about planting wheat.   I told him that I planted all the land that I intended in 2014 but couldn’t get planted and a little bit more.  He retorted by telling me that he wasn’t planting any wheat.  This was last fall when we had beautiful conditions to plant. He simply said that he couldn’t make any money growing wheat.  Of course, I knew what he meant and I wasn’t going to disagree with him.  Wheat is a tough one for farmers.  It’s the riskiest crop.  It’s the only one we exposed to four different seasons and it’s grown almost everywhere.

Little did I know that my colleague Darin Newsom would write about “The Last Wheat Harvest” this past week in his column.  In that piece he asks, “Why does anyone in the US grow wheat anymore”?  He then goes on to document how bearish price is.  He even points out that if the United States did not grow any wheat in 2016/17, global ending stocks to use would still come in at 28%, even higher than the latest WASDE report projected corn and soybeans stocks to use at 20.2%.  In other words, and I hate to paraphrase for Darin, growing wheat doesn’t make a lot of sense.

So Darin is from Kansas, where wheat is a bit of a religion.  I’m from Ontario, where wheat is often referred to as “poverty grass”.  It is known as a rotation crop, where we set up our land for more profitable crops like corn and soybeans.  Needless to say, I understand Darin’s sentiments, ditto for Ontario.  If we didn’t have the Canadian dollar in the mix, there would be a lot more people like my neighbor who will not grow wheat.  Thank goodness I have record yields this year.  That at least helps out.

The argument is made here in Ontario that we can expect much higher corn and soybean yields with wheat in our rotation.  There is also been quite an emphasis on intense management in Ontario, with higher nitrogen rates and the use of fungicide.  This has generally led to much higher yields, even though it comes at a cost that sometimes can’t be justified.  It’s all about the yield, which needs to be over 100 bushels per acre to make the conversation somewhat sensible.  I’ve got neighbors this year who are getting up 130 bushels per acre.  However, I usually have 80 bushels per acre stamped on my forehead.  That usually doesn’t work very well.

The other issue with Ontario wheat is that we have to export it, which always is a race to the cheapest price.  We produce more than we can process provincially.  Across the province basis levels differ from west to east.  So there are many issues stacked against wheat.  I haven’t even begun to talk about quality issues, which can be the crops Achilles’ heel in certain years.

So why should we as Ontario farmers continue to grow “poverty grass” in the acres we do? (1.09 million Ontario wheat acres in 2016) The world is screaming they don’t want more of it.

The answer of course probably has to do with that rotation argument.  However, its clear, especially with the advent of cover crops, not everybody agrees.  Wheat prices will have to do some heavy lifting in the future.  Its either that or Ontario wheat acres will continue to be flat.  However, it’s been a while since I’ve heard about any wheat price bulls.  I think they are still out to pasture.