Friday, April 11, 2008

Guest Blogger: Wheat Prices and Oregon

Been busy this week. Luckily Jeff Reimer, a professor in the Ag and Resource Economics Department at OSU is here to rescue me with a timely guest blog post:

Wheat is an important crop for Oregon. Oregon farmers plant about 910,000 acres of the stuff per year, mainly east of the Cascades (Umatilla, Morrow, Gilliam, and Sherman counties). Oregon wheat producers should be happy at the moment because wheat prices are at all time highs (see figure below from the Agricultural Statistics Board, NASS USDA - I believe these are nominal prices).



What could cause such as dramatic run-up in prices? Is it poor yields in recent years in countries such as Australia? Is it rising demand from Asian countries experiencing strong economic growth? Is it the government’s incentive for U.S. farmers to plant corn for ethanol in place of food commodities such as wheat?

These are all likely components, but the recent dramatic rise also seems due to speculation. When there's fear of inflation in the general economy, investors may like to shift to agricultural commodities such as wheat, as well as agricultural land. Commodity index funds are said to have about $25 billion invested in grain commodity markets right now.

This of course is very hard on businesses that make intensive use of wheat – such as your favorite pizza parlor and the local bakery. Don’t be surprised if the price of pizza goes up. On the other hand, at least Oregon wheat farmers should be able to afford it this year.

2 comments:

Dann Cutter said...

I am curious. With the price of certain staple commodities being a high as they are, doesn't that indicate an unprecedented (in my lifetime) level of inflationary pressure we haven't seen before.

Specifically, with worldwide food prices climbing (CNN reporting 120%) and with fuel costs being significant as well as additional pressure for consumption being placed on them (China, India) could not we be looking at more than just a simple Recession, but a real possibility of a Depression instead?

Jeff said...

Interesting questions, Dann...
I don't have any answers, but would note that during the Great Depression, crop prices fell by 40 to 60 percent. At least now they are rising rapidly.

Assuming this is from rising demand (as opposed to speculation, for example), there must be economic growth somewhere, and so the wheels of the economy will keep spinning (i.e., there will be jobs).

One idea circulating the internet is to tear down unsold houses (selling the copper out of them) and plant corn and wheat!