Higher wheat prices should make farmers like Nicole Berg, the owner of a 21,000 acre farm in Washington state, happy. But the costs of fuel and fertilizer are eating into her profits.
“The issue we’re having right now is that input costs are going up even more than the price of wheat,” Berg told CNBC in a recent interview.
Berg, like many farmers, is also constrained by the agriculture equipment market, which has been hit with supply chain disruptions that continue to delay orders of key machinery needed to plant and harvest.
“We have to put the deposit down so I have money going out, but I can’t even get the [no-till seed] drill until possibly the fall of 2024,” said Berg.
On last month’s earnings call, Deere & Co. said that order books for major equipment in the upcoming year are mostly full.
While winter wheat was already planted in late 2021, planting of spring wheat crop begins in a few weeks.
Farmers in states that produce spring wheat such as North Dakota, Minnesota and Montana are faced with a tough decision: Should they plant more crop not knowing whether prices will hold up?
“What if the Ukraine crisis suddenly evaporates? It doesn’t look like that but then [farmers] can be left holding the bag,” said Scott Irwin, an agricultural economist at the University of Illinois.
While some countries, including, China have been boosting supplies of agriculture commodities, wheat production in the U.S. has been steadily declining in recent years — down 35% from its 2008 peak, according to the USDA.
“Basically, what has to happen from a crisis like this with potentially seismic level loss of wheat supplies around the world, is places like the United States will draw down the reserves,” said Irwin.
With the war disrupting Russian and Ukraine wheat exports, one option is for the U.S. to look to nations like India. However experts say freight and transportation costs make this a less likely scenario.
Unlike parts of the Mideast that are already seeing shortages of bread, there are currently no signs of a shortage in the U.S. However, the cost to buy wheat-based products continues to rise, adding to inflationary concerns already gripping the American economy.
Modi points out that cereal is currently 10% to 15% more expensive than a year ago. The prices of bread have gone up 10%, he said.