Russian Wheat Crisis Boosts U.S. Growers

fromKUNC

A Russian man shovels grain i i

hide captionA Russian man shovels grain at a farm in Vasyurinskoe earlier this month. The U.S. government cut its forecasts for global wheat production as Russia suffers its worst drought in decades.

Mikhail Mordasov/AFP/Getty Images
A Russian man shovels grain

A Russian man shovels grain at a farm in Vasyurinskoe earlier this month. The U.S. government cut its forecasts for global wheat production as Russia suffers its worst drought in decades.

Mikhail Mordasov/AFP/Getty Images

Russia's drought and massive wildfires have sent wheat prices through the roof. Fortunately, most U.S. wheat farmers have had a stellar harvest and are likely to help meet global demand. That's especially the case in Colorado, which exports 80 percent of the wheat it produces.

Driving east out of Denver, the mountains give way to the high plains, and wheat fields unfold in every direction.

The wind is so ferocious, one has to use a death grip on the steering wheel. But on Mark Linnebur's farm, it's the flies that are the real nuisance. Linnebur fires up huge fans to keep things cool, and to prevent the flies and other critters from taking over and eating the wheat stored in 60-foot-tall bins.

Planet Money

He's holding on to more wheat in these bins this summer than he normally does because he's betting that prices will continue to rise.

"Our entire livelihood depends on that gamble," Linnebur says.

Given the drought in Russia and its new export ban, speculators and investors believe prices will soar higher before they fall. The drought and massive wildfires have already sent prices through the roof. Fortunately, most American wheat farmers are coming off one of their best harvests in years. In Colorado, farmers have produced record supplies this summer.

"To have a record yield and have above-average prices at the same time is historic," says Darrell Hanavan, the executive director of the Colorado Association of Wheat Growers. It's also "an inverse relationship," he adds.

Rising Costs

Hanavan expects the market will soon correct. He's also quick to say that the news isn't all good: As wheat prices rise, so have prices for fertilizer. And farmers are seeing other production costs spike. And then there are the concerns about global food shortages and hunger epidemics if there's less wheat on the market long term.

"We're never going to be able to control the weather," Hanavan says. "So some of this is par for the course."

Economist Charlotte Hebebrand, the chief executive of the International Food & Agricultural Trade Policy Council, says that at least in the short term, there's enough wheat to go around.

"Thank God we've got trade to make up for shortfalls," Hebebrand says. "The U.S. producers will be able to step up to the plate and meet global demand that's not presently being met by Russian wheat producers."

Possible Food Shortages

But if Russia has another bad year and drought returns to states like Colorado, economists believe food shortages will be a concern.

In Colorado, Linnebur sees opportunity but no cause for celebration in all of this. He says U.S. farmers could easily be in Russia's position next year.

"Because I might make a half-million this year, I'm not going to build a half-million-dollar home," Linnebur says. "I'm going to save that, because I've got to plan for the probability that next year's going to be a bad crop."

Linnebur has sold more than half of his wheat already, and he wishes he'd held on to more because prices are still climbing. He may have a second chance: With wheat prices forecast to continue rising, farmers must now decide how much wheat to plant for next year. Linnebur says that could affect his bottom line just as much as the Russian drought.

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