The Washington Post (pg. A1)  [Printer-friendly version]
April 29, 2008


For decades, wheat was king on the Great Plains and prices were low
everywhere. Those days are over.

Dan Morgan, Special to The Washington Post

At Stephen Fleishman's busy Bethesda shop, the era of the 95-cent
bagel is coming to an end.

Breaking the dollar barrier "scares me," said the Bronx-born owner of
Bethesda Bagels. But with 100-pound bags of North Dakota flour now
above $50 -- more than double what they were a few months ago -- he
sees no alternative to a hefty increase in the price of his signature
product, a bagel made by hand in the back of the store.

"I've never seen anything like this in 20 years," he said. "It's a

Fleishman and his customers are hardly alone. Across America, turmoil
in the world wheat markets has sent prices of bread, pasta, noodles,
pizza, pastry and bagels skittering upward, bringing protests from

But underlying this food inflation are changes that are transforming
U.S. agriculture and making a return to the long era of cheap wheat
products doubtful at best.

Half a continent away, in the North Dakota fields that grow the high-
quality wheats used in Fleishman's bagels, many farmers are cutting
back on growing wheat in favor of more profitable, less disease-prone
corn and soybeans for ethanol refineries and Asian consumers.

"Wheat was king once," said David Braaten, whose Norwegian immigrant
grandparents built their Kindred, N.D., farm around wheat a century
ago. "Now I just don't want to grow it. It's not a consistent crop."

In the 1980s, more than half the farm's acres were wheat. This year
only one in 10 will be, and 40 percent will go to soybeans. Braaten
and other farmers are considering investing in a $180 million plant to
turn the beans into animal feed and cooking oil, both now in strong
demand in China. And to stress his hopes for ethanol, his business
card shows a sketch of a fuel pump.

Across the Red River and farther north, in Euclid, Minn., Don
Strickler, 63, describes wheat as "a necessary evil." Most years, he
explained, farmers lose money on it. Still, it provides conservation
benefits and can block diseases in soybeans and sugar beets when
rotated with those crops.

Wheat's fall from favor, little noticed when it was cheap, has been
long coming. Though still an iconic symbol of American abundance --
engraved on currency and praised in song -- the nation's amber waves
of wheat have been increasingly shoved aside by other crops. The
"breadbasket of the world," which had alleviated hunger and famine
since World War I, now generally supplies only a quarter of world
wheat exports.

U.S. farmers are expected to plant about 64 million acres of wheat
this year, down from a high of 88 million in 1981. In Kansas, wheat
acreage has declined by a third since the mid-1980s, and nationwide,
there is now less wheat in grain bins than at any time since World War
II -- only about enough to supply the world for four days. This occurs
as developing countries with some of the poorest populations are
rapidly increasing their wheat imports.

Driving south from Grand Forks, N.D., on a freezing spring day, a
motorist travels through a landscape that looks like a scene from the
movie "Fargo." Mile after mile, fence posts rise from the snowy fields
on each side of the ruler-straight highway. It looks like classic
wheat country. But come summer, much of it will turn green from corn
and beans.

"Last summer it looked like Iowa around here," Braaten said.

Science, weather, economics and farm policy have all played a part in
the changes.

U.S. wheat yields per acre have increased little in two decades,
partly because commercial seed companies have all but abandoned
investments in improved varieties, preferring to focus on the more
profitable corn and soybeans. Subtle warming changes in the climate
and the recent availability of new plant varieties that thrive in
cold, dry conditions have pushed the corn belt north and west.

In 1996, Congress gave a strong nudge to these changes by passing
legislation allowing wheat growers for the first time to switch to
other crops and still collect government subsidies. The result is that
farmers received federal wheat payments last year on 15 million acres
more than were planted.

"Every year now, we're in a battle for acres," said Neal Fisher,
administrator of the North Dakota Wheat Commission. "We have a lot on
our plates as we try to manage the challenges that wheat faces."

"If our comparative advantage is corn and soybeans and Russia's is
wheat, having these shifts occur over time is not the end of the
world," said Edward W. Allen, a senior economic analyst at the
Agriculture Department.

But in the long run, said USDA wheat analyst Gary Vocke, "The forces
leading to the trends are still in place." Though supplies may
rebound, he and other experts doubt that prices will drop to prior

That poses serious concerns for countries that historically have
counted on the United States to have inexpensive wheat on hand to
cushion shocks.

A Run on American Grain

The U.S. government stopped holding large stocks of wheat in the
1980s, but the United States, nearly alone among wheat producers,
allows countries to shop here even when others have shut off exports.

This free-trade policy resulted in a run on the 2007 U.S. wheat crop
this year by foreign buyers taking advantage of the favorable dollar
exchange rate to stock up, even as Ukraine, Argentina and Kazakhstan
blocked exports.

"It was a perfect storm," said Jochum Wiersma, a grains specialist
with the University of Minnesota.

Problems started last summer with poor European harvests and a
disappointing winter wheat crop in the southern Great Plains. U.S.
prices moved above $7 a bushel, then crossed $10 after Australia
harvested yet another drought-damaged crop in December. As supplies of
wheat ran low, foreign countries began grabbing limited stocks of
premium wheat from the northern plains -- the variety used to make the
flour for Fleishman's bagels. Morocco, its own harvest of wheat to
make traditional couscous inadequate, jumped in with a purchase of
127,000 tons.

"With low stocks and a weak dollar, things fly off the shelf faster
than they used to," said David Brown, chairman of the American Bakers
Association's commodity task force. "There's just not enough acreage
coming back into production to replenish these stocks."

The reverberations were felt from Strickler's farm to Fleishman's shop
-- and far and wide across world wheat markets. When Strickler checked
his records recently, he found he had sold 850 bushels, about a
truckload, for a record $20 a bushel. That's a receipt he plans to
frame and hang on his wall.

But the same events put a squeeze on Vance Taylor, general manager of
North Dakota Mill, the huge state-owned flour mill that looms over
Grand Forks. Taylor's mill processes the spring-planted wheat grown
along the Canadian border and prized by bakers of bread, bagels and
other premium flour products. This spring wheat is high in protein and
gluten, which helps breads rise and imparts texture. Among the mill's
products are the bags of Dakota King flour that Fleishman uses to give
his bagels their special chewy quality.

Suddenly Taylor couldn't find enough wheat. On Feb. 4, the state's
Industrial Commission, headed by the governor, approved a rare waiver
allowing the mill to buy spring wheat from Canada if needed. But in
late March, the commission rescinded the waiver, which was highly
unpopular with U.S. farm organizations. That left Taylor with a
shortage of 1 million bushels before the August harvest. Since then,
he said, he has found enough domestic wheat to get him through.

But prices rose rapidly down the supply chain.

"We raised our selling prices after the flour mills raised theirs,"
said Ted Lentz, president of Lentz Milling of Reading, Pa., which
distributes North Dakota flour to bakeries from New York to Virginia.
"Some of our baking customers have reduced their flour purchases up to
20 percent because of the higher prices."

A Return to Wheat?

Whether 2008's high prices will lure many farmers back to wheat is
still a matter of debate.

The ethanol boom, in particular, is providing strong incentives to
keep former wheat acres in corn. Within a year, Braaten will be able
to truck his corn to three modern ethanol refineries, one already
built and two others near completion. These huge distilleries will
need corn from an area about the size of Rhode Island, and many of the
acres will come at the expense of such traditional crops as wheat and
sugar beets.

Corn has even begun to make inroads in the western part of the state,
where sparse rainfall and the short growing season traditionally have
ruled out most crops except wheat, barley and oats. Spurred by the
availability of cheap coal for power and a local cattle industry that
will buy the dry byproducts for feed, a new ethanol plant opened last
year in Richardton, west of Bismarck, the capital.

"There's getting to be more and more corn all the time," said Clark
Holzwarth, the refinery's commodity manager.

At current prices, farmers like Braaten can make more money from an
acre of corn than from an acre of wheat, according to North Dakota
State University economist Dwight Aakre. But wheat's biggest problem
is susceptibility to disease, which has turned many farmers against

They remember the 1990s, when fusarium head blight, commonly called
"scab," devastated successive wheat crops. After that, many farmers
switched to new varieties of hybrid corn and genetically modified

These seeds are protected by patents and licensing agreements,
requiring farmers to buy a new batch each year. That produces strong
financial incentives for the companies. Research might solve many of
wheat's problems, but commercial companies say the opportunities for
profit are limited. In 2004, Monsanto, the world's largest seed
company, shelved its research on a wheat plant that had been
genetically modified to tolerate chemical weed killers.

The milling industry has been resistant to using such genetically
modified wheats, so wheat plants have to be improved the old-fashioned
way, by laboriously selecting those with the desired qualities in test
plots. That is an expensive and time-consuming process.

Even then, there is no assurance that farmers will buy the seed year
after year. That is because of the nature of the wheat plant, an
unusually complex organism originating in the Middle East thousands of
years ago. Unlike hybrid corn, which loses its productivity after the
first year, seeds from improved wheat varieties can be saved and
replanted for several years without significant loss of yield.

Syngenta, a large seed company, is still working to develop improved
wheat, but Rob Bruns, who heads the North American cereal seed
operation, acknowledged that it's difficult to create "enough critical
mass to pay for the higher tech investments."

The upshot is that most wheat research is now consigned to public
colleges with limited amounts of federal and state funds.

At North Dakota State University, wheat breeder Mohamed Mergoum helped
develop Glenn, a new wheat based on a cross with Chinese plants. "It's
a joy to make a difference in the life of the growers," said Mergoum,
who worked earlier in the international program that developed higher-
yielding "green revolution" wheats.

Glenn has proved resistant to scab, but it hasn't achieved universal
acceptance among farmers.

Strickler, the farmer in Euclid, Minn., gave it a try one year but
stopped using it after finding that a lot of the kernels cracked when
they were separated from the chaff during threshing. As he sees it,
Glenn is another example of how devilishly difficult it is to develop
positive new traits in wheat without other problems arising.

James A. Anderson, a plant breeder at the University of Minnesota,
predicted that the seed companies will continue to make inroads in
wheat country with new kinds of corn and soybeans.

"They've definitely moved into the spring-wheat region with dedicated
breeding," he said. "They're trying to get whatever acreage they can
and sell more of their seed."

These developments suggest that the days of a bagel for less than a
buck may not return to Bethesda anytime soon. Though prices have
dropped from their March high, Fleishman is still paying close to $50
for a bag of flour.

"I feel helpless. I go with the flow," he said recently at his store.
He is getting ready to change his menu boards to reflect a new price:
probably $1.10.

He is not happy about it. "There's a psychological barrier, and a
certain segment will be resentful," he said. "They'll get angry and
feel gouged. People don't understand about food prices."

Morgan writes for The Washington Post on contract and is a fellow at
the German Marshall Fund, a nonpartisan public policy institution.
Staff writer Jane Black contributed to this report.