Vance Ehmke tracks global grain markets as closely as he watches the weather forecasts, so when his winter wheat crop was nearly double its normal size, he hoped all those extra bushels would make up for lackluster prices.
Then Russia announced in August that it would ban wheat exports, demand for U.S. wheat surged and prices soared.
Unfortunately for Ehmke and most other U.S. farmers who grow the most popular kind of wheat — winter wheat — their crop was already sold by the time prices skyrocketed, leaving the big profits to speculators who buy commodities on the futures market. The timing was better for those farmers now harvesting spring-planted wheat in the northern Plains states.
Ehmke, who farms some 3,200 acres of wheat near Healy in west-central Kansas, said the price difference potentially cost him a quarter million dollars in lost revenue.
"People are just stunned by what is going on," Ehmke said.
The run-up in prices has been extraordinary.
At the Kansas City Board of Trade the cash price of hard red winter wheat has shot up 57 percent since June 29, when rumors of the drought-plagued Russian crop began circulating. In Minneapolis, the price of hard red spring wheat climbed 33 percent during the same time. In St. Louis, soft red winter wheat rose 36 percent.
"Why didn't we see this coming?" Ehmke asked. "With the intelligence we've got these days in markets there aren't supposed to be any secrets."
By far most of the wheat grown in the United States — more than 1 billion bushels this year — is winter wheat that is planted in the fall and harvested in early summer in Kansas, Oklahoma, Nebraska and Texas. An estimated 592 million bushels of spring wheat is now being cut in North Dakota, South Dakota, Minnesota and Montana.
Hard red winter wheat is typically used to make bread, while soft red winter wheat is favored for cookies and pastries. Spring wheat, which has a higher protein and is a stronger wheat, is used for making bagels and artisan breads.
Farmers across the Great Plains now have begun seeding their 2011 winter wheat crop amid a volatile global market.
Those like Rich Randall, who farms near Scott City in western Kansas, said it's hard to miss out on such huge profits, but that's how the system works.
"It gets a little frustrating, but that is part of farming," Randall said as he drove into town to buy seed.
He noted that the higher prices bode well for the winter wheat crop now being planted.
Randall plans to lock in today's high prices by forward-contracting much of his next year's crop, in effect selling that anticipated harvest now to the local grain elevator or other buyer for delivery at a future date.
"Marketing is one of our biggest challenges," Randall said. "We can handle the production end pretty easily, but the marketing is the major challenge."
The Russian export ban caused a "major paradigm change in thought and perspective" in wheat markets, said Dan O'Brien, an agricultural economist at Kansas State University.
The cash price at Kansas City of hard red winter wheat had risen from $3.98 a bushel on June 29 to $6.69 a bushel by the time the World Agricultural Outlook Board released on Sept. 10 its estimate that global wheat supplies were plentiful enough to offset the Russian shortage. Prices have remained volatile as the market reacts whenever it rains in Russia. By Tuesday they ranged between $6.21 and $6.26 a bushel.
Fueling even more uncertainty were news reports in September quoting Russian President Dmitry Medvedev saying Russia could lift its ban on grain exports later this year when the final harvest figures come in.
Some commodity traders are skeptical Russia will lift its export ban until the country has a better idea of the size of its 2011 crop.
"You can't tell what the Russians are going to do until they do it — no matter what they say," Ehmke said.
Whatever the price, consumers are unlikely to notice much difference when they buy bread.
That is because a bushel of wheat yields about 42 pounds of flour — enough flour to make 73 loaves of bread. That means every dollar increase in the price of a bushel of wheat translates into a mere 1.4 cent increase in the price of a loaf of bread, O'Brien said.
Although the poor harvest in Russia helps U.S. wheat growers, no one expects wheat prices to reach the record levels they did two years ago when the world was down to almost a 60-day supply of wheat, said Aaron Harries, marketing director of the industry trade group, Kansas Wheat.
"We have adequate stocks of wheat here in the United States and in the other major exporting countries to cover the shortfall that Russia will have," Harries said.