Inside the Market

If we ask the typical trader what a bushel of wheat is worth, we're apt to get the curt response, "Whatever the market will bear." If we ask an economist, the answer will vary depending on the theory to which the economist ascribes. An Austrian economist will tell us that value, like beauty, is in the eye of the beholder. A Marxist would tell us the value of wheat depends on the amount of labor required to produce it. Some will need a chalkboard and funny-looking Greek symbols to explain.

Today, I don't care about economic theory. Russia's President Vladimir Putin is proving wheat is far more valuable than growers are being paid.

As I write this in late February, the spot futures price of Kansas City wheat is $5.86 a bushel, Chicago wheat is $5.83 a bushel and Minneapolis is $6.66 a bushel -- all near their lowest prices in at least two years and well below USDA's average production cost estimates for wheat in general. Callous traders would say the market is sending a strong message for producers to stop growing wheat. They probably think a career in cryptocurrency would be better.

In my lifetime, there have been three world leaders who understood the value of wheat better than most. Presidents Dwight D. Eisenhower, John F. Kennedy and Vladimir Putin. In 1954, Ike signed a law that later became known as Food for Peace, a program that was broadened under President Kennedy and incorporated into the United Nations during Kennedy's term. The law authorized the shipment of agricultural surplus to friendly nations on terms favorable to the countries in need. It is not hyperbole to say the law promoted goodwill and democracy in parts of the world far from home.

Since the 1980s, the political mood soured on foreign aid, and recent contributions of U.S. wheat have become slim. In fiscal year 2022, the United States Agency for International Development provided nearly 41 million bushels of wheat, a slight amount, given wheat's 570-million-bushel surplus in 2022-23.

Meanwhile, Russian President Putin has intentionally increased wheat production over the past 12 years and has successfully built such a domestic surplus that it is on track to export 1.87 billion bushels of wheat in 2023-24, by far the largest exporter of inexpensive wheat in the world.

By contrast, the more market-driven view of U.S. wheat policy is expecting 725 million bushels of wheat exports in 2023-24, the smallest amount in more than 50 years. More concerning, Russia is parlaying its wheat surplus into increasing political influence throughout Africa and the Middle East, providing authoritarian leaders with promises to keep them safe and their people well-fed. For their troubles, Russia gets a share of the countries' resources and votes at the U.N., and is bargaining access to locations near the world's key trade routes.

I hate to say it, but when it comes to understanding the value of wheat, Russia's Putin has been more astute than most Western leaders since Eisenhower and Kennedy. In his own malevolent way, Putin understands the value of wheat.

**

-- Read Todd's blog at https://about.dtnpf.com/…

-- You may email Todd at todd.hultman@dtn.com, or call 402-255-8489.

[PF_0424]

(c) Copyright 2024 DTN, LLC. All rights reserved.