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.