by Sacramento Bee
Posted on 8/21/2010
With wheat prices soaring since Russia banned grain exports, farmers like Clarksburg's Larry Hunn are coolly calculating the odds of beating a most fickle of gambling dens: the world grain market.
In past weeks, wheat prices have risen from $4 a bushel to about $7, grabbing the attention of everyone in America with a tractor, combine and acreage to plant.
In Clarksburg, better known for pears and wine than wheat, Hunn, who farms 3,000 acres, has already placed his bet. He locked in a price on the futures market - roughly $7 a bushel - for a 400-acre crop he won't even plant until late fall nor harvest until around July 2011.
"I see a potential for making a profit," he said. "A guy's gotta be prudent."
If wheat prices are higher than $7 when Hunn harvests his crop, he won't make as much money as he could have. But he knows $7 is a good price, and he's protected if the price slides backward again - as many suspect it might in a world that still holds a lot of wheat in its grain bins.
The quick ascent in a basic grain that's traded anywhere from $3 a bushel to $7 in recent years accelerated this month as drought-stricken Russia announced it will hoard its depleted wheat crop. Other nations like Ukraine, Kazakhstan and Canada are also anticipating less production.
Hunn, with more than his share of insight as president of the California Wheat Commission, is making a bet that typifies the difference between farming and everyday business. It's a game where one person's drought is always another's bonanza, where Russia's loss might be California wheat growers' gain in export markets of the Middle East and North Africa.
The Clarksburg grower thinks he made a good decision. Other farmers will have to make their own call on how much wheat to plant this fall. Many in California are banking on planting more acreage, Hunn and the Woodland-based wheat commission believe.
"What Russia has done is drive our prices up for the next year. And when prices go up there's more opportunity to make a profit. Guys are going to go in that direction," said the Yolo County grower, who rotates wheat among his acres of tomatoes, cucumbers, safflower, corn and alfalfa.
The risk, of course is that too much wheat production around the world could send prices skidding back to earth.
Modesto farmer Dave Wheeler said Friday that he's going to grow more wheat.
"I usually do 600 acres of wheat," he said. I'll probably do 800 acres this year. It seems like a sure thing."
And Wheeler joined Hunn, at least partially, in locking in his price. He said about half of his 2011 harvest has been sold at a contract price of $7.10 per bushel, and he plans to contract an additional 20 percent of the crop eventually.
At 659,000 acres this year, California wheat is a small player in a U.S. wheat market estimated at more than 35 million acres anchored on prairies and flatlands. Though grown from Imperial County to the California-Oregon border, wheat is a seldom-seen crop along California highways more likely to showcase grapevines and dairy cattle.
Agricultural economist Dan Sumner, head of the University of California's Agricultural Issues Center in Davis, said California wheat is less than 1 percent of U.S. production and exports. On a list of the state's leading crops and crop products, starting with almonds, wheat ranks a distant 29th, according to Sumner's AIC.
Much of the state's crop goes into pasta, bread, tortillas, noodles and cattle feed, just like wheat harvests roughly every four months around the world.
"California doesn't move prices. California is for the most part a price taker for wheat," the economist said.
That wasn't so true a century ago. In 1889, before widespread irrigation and refrigerated rail cars, Central Valley dryland wheat made California the nation's second-biggest wheat producer after Minnesota, according to the U.S. Department of Agriculture.
Still, California retains some bragging rights. Its predictable weather and irrigation produce some of the nation's highest yields.
"We have an average of just under three to over three tons per acre," said Janice Cooper, executive director of the wheat commission. "If other states get a ton (per acre), that's a good harvest."
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