Wheatfall Profits

by TED S. McGREGOR JR. & r & & r & & lt;span class= "dropcap " & T & lt;/span & hey say money doesn't grow on trees, and they're right -- this year, it'll be growing right out of the ground. At least that's how it feels for long-suffering wheat farmers in Eastern Washington. Over the past year, as has been the case with so many commodities, wheat prices have skyrocketed and our region's farmers are looking forward to what appears to be a once-in-a-lifetime bonanza.





There are many reasons for the spike -- growing demand from the developing world, tight supplies, the weak dollar -- but folks in farm country aren't asking too many questions. For decades, it seemed, a bushel of wheat was stuck at $3; last month, a bushel topped $17. The signs of a boom are everywhere, from empty grain silos (the United States' wheat reserves are at their lowest point since just after World War II) to year-long waits to take delivery on new combines.





The price spike is really a case study in global economics (a drought in Australia has put money in the pockets of local farmers) and how everybody wants an American lifestyle and diet. Now, across the planet, more of them than ever can afford it.





"Everyone wants to eat like an American on this globe," ag expert Daniel W. Basse told the New York Times in a front-page story last Sunday. "But if they do, we're going to need another two or three globes to grow it all."





Consequently, Egypt, Japan and even Pakistan (among many others) are out bidding on the open market for scarce supplies. That's how prices rise in the 21st century.





But it works both ways, and high prices are coming home to roost. In New York City, pizza joints are raising the price of a slice, as the cost of flour has tripled in just five years. In Mexico City in January, thousands marched in protest over the high cost of corn, the main ingredient in the national staple, the tortilla.





As the nation -- perhaps the world -- faces recession, farmers are looking at the best years ever.





& lt;span class= "dropcap " & O & lt;/span & bviously we should welcome this good news -- rural Washington has needed a shot in the arm for years. And as the nation's fourth largest wheat-producing state, we deserve a bonus. Maybe it's one more piece of insulation from the recession we keep hearing about.





Still, it's a little unsettling -- high commodity prices seem to always accompany uncertain times. Somehow we're positioned to benefit from all the chaos. So after the celebration, we should understand the dynamics involved, since past boom cycles (in 1974 and 1996) were followed by busts and stagnation.





The fact is, nobody predicted this spike, and nobody seems able to know where it's headed. Some experts say the world has profoundly changed, that a new threshold of demand has been hit and therefore these high prices are here to stay. Others predict supplies will improve and prices will come back down. (Already, fallow fields around the world are being hurried back into production -- perhaps five million additional acres will be put into production this spring in the United States.)





Critics of farm policy point to a simple explanation -- ethanol. Now that the government is subsidizing corn production to be used as an additive to gasoline, corn has become much more expensive, causing a ripple effect that is rolling through all farmlands, no matter the crop. The critique extends to the question of whether corn even makes sense to turn into fuel, as it takes a lot of corn to make a little ethanol -- perhaps burning more energy to create than it actually makes. Still, corn producers in the Midwest aren't worried about the new policy, as their crops, like wheat, are hitting record highs.





It's also true that the price to play is growing, as transportation, fertilizer and the cost to own or rent land are also at all-time records. But most troubling is the impulse to speculate on commodity futures. First Wall Street speculated on Websites, then everybody (with an assist from unregulated mortgage lenders) speculated on the value of their home; now we'll see if we've learned anything. (Maybe some of us have, as the wheat market in Minneapolis recently took the prudent decision to cap the amount of fluctuation in price that would be allowed each day.)





If agricultural commodities are allowed to become the latest unregulated playing field for our speculating class (as is happening with oil), farmers will lose in the end.





& lt;span class= "dropcap " & E & lt;/span & astern Washington, from way back, has been at the mercy of these boom and bust cycles. Will this one be different? If superheated prices are taken as an absolute good, this cycle may wind up just like the rest. Consumers are already feeling the sting, and like those Mexican protestors, New Yorkers whose slices are getting too expensive will raise hell and somebody will do something. Likely that means Congress perhaps enacting some kind of protectionism, as happened when sales to the Soviet Union were banned in 1980, or price controls to keep flour affordable.





Another predictable outcome would be rushing too many acres into production, flooding the market for a potential short-term windfall. But this strategy also risks a future price depression, and another bust.





There's a fine line to be walked here. Our food supply should be considered an element of national security -- it is, after all, the foundation of our way of life. That means we should have enough to satisfy our own needs here at home, at a price we can afford. But we should also produce enough to feed as much of the world as we can -- that's a moral issue as well as basic economics.





There are always a lot of competing forces trying to upset that balance one way or another. But if we can keep ourselves on the wise path, Eastern Washington and the rest of farm country might just be in for a renaissance.