The last time the hefty price of wheat was a dinner conversation topic the then-secretary of agriculture, Earl Butz, hit the road to deflect consumer anger from farmers.
His only weapon was a loaf of stale bread.
“Farmers don’t set the price of food,” Old Fencerow to Fencerow would proclaim as he unwrapped the bread before an audience. “The market does.”
He’d then move the loaf, slice by slice, from one side of the podium to the other to illustrate what each step of the breadmaking process — flour milling, baking, packaging, transportation, wholesaling, advertising, retailing, labor — cost.
Finally, with just one piece of the loaf remaining, Butz would ask “And the farmer’s share? Well, it’s right here,” he’d reply, waving high the last slice, “and it’s the heel!”
Say what you will about Earl (been there, done that), his economics were sound: Wheat, then as now, was not the most expensive component in the price of bread.
Moreover, if the cost of cereal and bakery products are indexed to where 100 equals the 1982 to 1984 price level, farmers in Earl’s 1970s heyday received 25 cents of every dollar spent on cereal products.
If that sounds like a lot, it was. In fact, it was nearly 50 percent more than just two years prior because the farm price of wheat doubled between 1972, and 1974, after the Soviet Union quietly purchased nearly 20 percent of all U.S. wheat to cover the collapse of its collectivized farms.
By 1977, however, the farmer’s share of each bread dollar was back to a more normal 12 cents. And that share — until last year — steadily declined.
On the rise
In 2005, farmers pocketed just 6 cents of every American dollar spent on cereal and bakery products. Most food costs now are rising again. The U.S. Department of Agriculture forecasts retail prices will rise 3.5-4.5 percent this year after a 4 percent increase in 2007.
Prices for cereals and bakery products, forecasts USDA, will climb even faster, 6.5-7 percent in 2008. But as Butz decried during the 1970s run-up, farmers aren’t responsible for the increases; the market — with assistance from its two key players, weather and Washington — is.
Those two partners, usually linked more with troubled times than with good times, are throwing gasoline on today’s demand-led markets.
Australia’s poor 2006, and 2007, wheat crops illustrate how even small changes in supply can ignite global commodity markets when an increasingly wealthy world needs food.
Ending world wheat stocks for the 2005-2006 marketing year were 148 million metric tons, or 5.3 billion bushels. Australia’s back-to-back droughts pared 2007-2008 stocks to 110 million metric tons, or 4 billion bushels.
That two-years-in-the-making, 25-percent drop in supply, however, tripled wheat prices in 19 months from around $5 per bushel in Aug. 2006, to over $15 in Feb. 2008.
Like weather, Washington is an equally effective market force. When President Bush kissed his biofuel baby, ethanol, two years ago in the State of the Union Address, 1.6 billion bushels of corn, or 19 percent of U.S. production, went into ethanol.
This year, USDA estimates, twice as much corn, or 3.2 billion bushels, will be squeezed into ethanol.
That doubling has tripled prices. When ethanol caught the president’s eye, corn futures were sleeping at $2.70 per bushel. Today, corn futures are wide awake and roaring; old and new crop futures both topped $6 per bushel in early April.
So, go ahead and complain about today’s rising food prices. Make sure you point to today’s biggest pushers, though — weather and Washington, not farmers. And, oh, as my mother might say, remember your manners.
Don’t complain with your mouth full.
(Alan Guebert’s Farm and Food File is published weekly in more than 75 newspapers in North America. He can be contacted at email@example.com.)
© 2008 ag comm
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