Eastern Montana could have used Charles Dickens as a farm reporter last year because of extremes in weather and prices.
In Yellowstone County “it has been the best year for some of these producers and the worst time for others,” Montana State University Ag Economics Professor George Haynes said at a recent economic outlook conference in Billings.
Too much of a good and often scarce resource – water – kept farmers out of flooded fields along the Yellowstone River drainage and many of those along the Eastern Montana Hi-Line had to delay plantings because of snow buildup or excessive spring rains in May and June, Dr. Haynes said.
Yet there was too little in wheat areas of Texas, Oklahoma and Kansas and much too little in the Eurasian breadbasket of Russia. So much so that wheat prices spiked after the former Soviets cut off wheat exports for fear of the same kind of bread riots that have been the stuff of regime change since Old Testament days.
In Montana, floods in the Yellowstone and Clark’s Fork valleys kept some beet farmers from planting at all, Dr. Haynes said. Those who did get beets in the ground had phenomenal yields of up to 25 tons per acre and sky-high prices of $70 per ton.
Dr. Haynes said that July maps showed absolutely no Montana counties rated in any stage of drought. “We’ve never seen that before and we’ll never see it again,” he said.
If farmers were able to get crops in last year, Dr. Haynes said, “it’s been a great year with a price rise of 25 percent.”
Production of spring-planted crops dropped severely from the records of 2010, he said. Spring wheat production was down 29 percent and barley 19 percent. Overall wheat production dropped 19 percent from the record 215 million bushels of 2010.
U.S. wheat had its biggest losses in the drought-stricken states of Texas (down 61 percent), Oklahoma (down 43 percent) and the top wheat state, Kansas (down 23 percent).
North Dakota, a leading spring-wheat competitor to Montana, saw production slump by 43 percent because of flooding and delayed plantings.
Nearly two-thirds of Montana wheat is exported – usually to Asian markets serviced by Pacific Northwest ports – and Dr. Haynes said continued consumer demand in developing economies and the weak U.S. dollar bode well for increased Montana wheat exports. “A continued weak dollar will make our grain exports more attractive to our customers abroad,” he said.
Futures prices “suggest that grain prices will remain well above historical averages through the 2012 harvest,” he said.
Wheat sold in Montana averaged $7.53 per bushel since the July harvest, according to the Montana Agricultural Statistics Service. That’s about $1.25 higher than the 2010 market average and $2.38 better than 2009, when the recession is said to have kicked in. In mid-January, Montana wheat was averaging $7.55, with spring wheat selling at $8.21.
Wheat prices have followed corn prices, which had been propped up by federal subsidies to giant ethanol refiners such as Archer-Daniels-Midland that were converting about 40 percent of the nation’s corn into motor fuel. That subsidy ended last year but prices have remained strong.
The ag economist warned that expanding global plantings in reaction to high prices still means that “wheat is never more than a year away from $5 (per bushel)” yet “farmers know how to make profit with five-and-a-half dollar wheat.”
“We’re seeing cattle prices we wouldn’t have dreamed of” with light calves selling at more than $2 a pound. The U.S. Department of Agriculture Market News Service says feeder cows in Billings auctions were selling for more than $1 a pound – historically a good price for light steers – while heavy heifers were bringing anywhere from $1.25 to almost $2 per pound.
A low cattle inventory (around 2.5 million head for Montana) and record beef exports to bursting Asian economies should keep cattle prices strong, he said.
The low-priced U.S. dollar also has curbed Canadian shipments of slaughter cattle and beef into U.S. markets, he added.
“The decline in Canadian imports has been offset by a 25 percent increase in feeder cattle from Mexico, due to drought conditions,” he said.
He said Montana has close to a million acres of former cropland retired and planted to ground cover under the multi-year contracts in the federal Conservation Reserve Program (CRP).
Those contracts are expiring soon and idled land might be converted back to rangeland. “Maybe we’ll see some (cattle) herd expansion” as those contracts expire, and grazing is allowed, he said.
When CRP was established in the 1980s, cattlemen’s groups insisted that haying or grazing not be permitted on CRP land for fear of a price-depressing herd expansion.
Domestically, Dr. Haynes said: “The economic downturn has changed the price relationship between cheaper (hamburger) and more expensive (steak) cuts of beef. While prices have increased for both, hamburger prices have increased at a faster rate because of the increased demand for lower-cost beef products … ”
Montana ranchers typically market calves and yearlings to Midwest and Great Plains feedlots to be fattened for slaughter. Montana producers “depend on the steak market for their high-quality beef,” he said.
Drought in Texas and other plains cattle states saw hay reach unprecedented heights of $300 per ton, but Dr. Haynes said Montana hay wasn’t headed for the Lone Star state. “It’s going to Idaho,” he said.
“Montana hay is being cubed in Idaho and shipped to Asia.”
Asian markets also are a prime target of the burgeoning Montana alternative crop market.
Montana produces 38.8 percent of the nation’s lentils, 29.1 percent of dry peas and 46.4 percent of Austrian winter peas.
Consumer prices for livestock products (meat, dairy and eggs) went up 10 percent last year. Wheat-based products went up by 5.6 percent.
The U.S. Department of Agriculture has forecast a rise of 2.5-3.5 percent in food prices this year.
Dr. Haynes noted that farm-gate prices for raw products such as crops or livestock account for a mere 19 cents out of each dollar consumers pay for food.
Labor costs along the food-processing chain come to 39 percent – double the farmer’s share – while packaging and advertising 12 percent and transportation 4 percent, according to Dr. Haynes’ figures. “Other off-farm costs” make up the remainder.