Wheat prices likely to fall

Press, Volume CXIII, Issue 33417, 26 December 1973, Page 7

Wheat prices likely to fall

by

A. McARTHUR,

The high prices for wheat on tiie world market are giving American farmers an incentive to raise production. Therefore the present record prices are not likely to be permanent. This is because higher supplies of wheat will suppress prices in the medium term.

Fortunately for New Zealand, our American and Euro-. pean competitors depend on; cheap grain to feed their, livestock so meat, production 1 ought not expand too fast and New Zealand should be able to ride the crest of this! wave for longer than the American grain farmer. This is my thumbnail sketch of tile situation after talking to agricultural economists. farm advisors and fanners. The United States economists don’t seem any better than New Zealanders at forecasting major upward or downward surges in prices. They did not expect wheat to i shift from SUS2 to SUSS. [ However chance . events J play such an important part lin prices, and this year nature has dealt out a royal [flush with world demand for ■ food high and supply low. PRICES SOARED Prices have sky-rocketed. The United States farm price index, which relates prices of outputs to costs of inputs, has shot back to the 1914 parity level of 100 for the first time in 20 years.

On the demand side, American, European and Japanese consumers have! never had it so good. There! [are more of these affluent ! consumers and they arei [spending rather than saving, i But the supply of grain was down too. Firstly the United States Government got rid of its surpluses to a new customer who has had a continuing farm problem — U.S.S.R. So United States reserves of wheat before the 1972 harvest were low anyway, but the harvest was

their worst for many years The harvest just m is 12 per cent above last year, hut it is insufficient to meet the demands for the world trade in wheat. I asked economists what they thought American farmers would do as a result of the high prises for wheat. They were sure that farmers would sow more acres. Now that the land-bank restrictions are off. an extra 12 to 19 million acres are likely to be brought back into production. Supplies .of wheat are expected to increase, although high prices for wheat are still expected for 1974 and probably 1975, 1 was told. UNCERTAIN BUSINESS However, agriculture is an ; uncertain business. There could be a run of bad [harvests. The marginal land [now returning to production [is the poorer stuff, and much [more prone to suffer in [ adverse years.

Some climatologists believe there may have been a climatic shift which will bring drought to some of the breadbaskets of the world. If this were so, wheat prices would stay up for a long period and New Zealand might then have to think of [switching in part from grass to grain for export.

The more likely outcome will be a return to surplus grain production from 1975. although most people believe that wheat prices won’t fall back to their pre-boom levels. Grain prices have a great significance to New Zealand producers of animal products, because nearly everywhere

else farmers feed their animals on concentrates rather l [than on grass. PIG PRODUCTION I I was told that although l [pork prices are high it is unlikely that American farmers! will increase pig production much. This is because the small farmer can now make a good return from selling corn directly rather than processing it through a pig. Moreover, pig production is now in the hands of largescale operators who invest in proper facilities. They have

seen pig prices come and go and are wary about investing in an enterprise which will become a thud in a year or two. Beef production is expected to rise, but not at any faster rate as a result of the higher meat prices. In tact feed-lot [operators who fatten pasturei reared weaner calves on concentrates. are having to pay extortionate rates for their feed. Life is not easy for: them. However those who produce beef weaners also use concentrates and hay has doubled tn price. Some may be tempted to cull old cows more heavily this winter and collect the high price now, rather than meet the costs and risks of keeping the old girls on another year. DAIRY FARMING There is even a glimmer of hope for dairy farmers in these high prices for grains. Dairy fanning is being squeezed by controlled milk. . prices under Phase VI on the [.one hand and high concen- . [trate prices on the other. [[Some dairy farmers may be ([tempted to cull cows to take -■the opportunity of getting out j of the business. f} The environmentalists have. ;[the screws on dairy farmers 1 [too. The local environmental

were about to proMi’ute a dan \ tanner who had hi.-. 1.5(1 cows housed the vear round m a loose shed. He swept the dung from this shed over an adjacent bank. The 10-year accumulation bred swamis of flies and a stench sufficient to make a New Zealand shed inspector have a tit. He was complaining about not being able to retain hired help. However everyone in the United States confirms the fact that while American farm lobbies are weakening, the dairy lobby is far the strongest and New Zealand will have a difficult task getting dairy products into this market At least stable dairv production in America removes the threat of them entering the world dairy trade. Fina 1 1 y there are ramifications of the wheat price boom for Canterbury's process crop growers. The farmers and the process crop growers are arguing about prices and now the farmers have the whip hand because they have such a profitable alternative in wheat. Canneries will find it difficult to till stores and freezers next year and this .should open up opportunities [for New Zealanders if we ! are on the bail.