Spring Wheat Prices Reach Record Highs - Will Farmers Strike it Rich?

Over the past year, spring wheat prices have fluctuated from $5 per bushel, to $21 per bushel, and back down to $15 per bushel. With this $10 per bushel increase, there are many reports that spring wheat producers are making a ton of money. But are those reports accurate?

Historically, $5 per bushel was a good price for spring wheat. Many farmers got excited last year at harvest time when spring wheat prices rose to $6.20 per bushel. Because spring wheat prices hadn't been that high in 12 years, most farmers sold a good majority, if not all their crop, right off the combine.

Right after harvest, the price continued to increase. When the price reached $7 - $8 per bushel, many spring wheat producers contracted their grain, locking in what they thought was a terrific price.

But the prices continued to rise. At the end of January, spring wheat was at $13.50 per bushel. During the month of February, the price went up to $21.50 per bushel. As quickly as the price went up, it went down three times faster. In approximately eight days, the price for spring wheat went back down to $13.50 per bushel. Currently the price is right around $15 per bushel.

Because spring wheat farmers had no idea the price would go up so high, not many producers had any grain to sell when the price reached that astronomical price of $21.50 per bushel. With the good prices at harvest, many producers couldn't afford to hang on to their wheat any longer. Local reports claim that area farmers lost out on anywhere from $90,000 - $400,000 of revenue, because they contracted or sold their wheat earlier.

What caused the dramatic price fluctuation on spring wheat?

The United States exports much of its crop production to other countries. At harvest time last year, the United States was one of the few countries with export wheat available, forcing other countries to buy from the U.S. The importing countries covered their spring wheat needs in that $6 - $7 range. But because the United States sold so much of our spring wheat production, it left our own mills short on wheat. When the supply drops and demand increases, prices go up.

However, not many countries can afford $20 spring wheat. That is why the price dropped so quickly from $21.50 to $13.50. Japan opted to start buying the cheaper winter wheat at $12 per bushel, instead of the expensive spring wheat. That lowered the demand for spring wheat, which dropped the price. Currently, the slight increase to $15 per bushel for spring wheat is due in part to Japan's renewed interest in the higher quality wheat.

But wheat prices are still three times higher than they were last year, so farmers should be striking it rich, right?

Wrong. Production costs are also three times higher than they were last year. Fertilizer costs have tripled, fuel prices are constantly on the rise, and crop insurance premiums are much higher than they were last year.

Although farmers have the same ratio of production cost to selling prices as 2007, there is a lot more money invested, which equals a much higher risk. Farmers will be okay if those wheat prices stay high, but there is no guarantee they will, and it's unlikely production costs will decrease.

Farming has always been a gamble, but 2008 brings much higher stakes.