This Year's American Wheat Harvest Has Been Awful

Joe Weisenthal (0:09)

Hello and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:15)

And I'm Tracy Alloway.

Joe Weisenthal (0:16)

Tracy, obviously when we talk about inflation, which we talk about all the time, a lot of the conversation has to do, of course, with the macro, monetary policy, fiscal policy, the compensation for years of underinvestment in key commodities or key industries. But it really does seem like in some areas, I don't know if luck is the right word, but there are some areas where things are contributing to shortages that do seem like sort of like bad luck and not necessarily related to the economic cycle directly.

Tracy Alloway (0:54)

But here's the thing. So yes, I agree with you, but it feels like that bad luck just keeps continuing, right? It feels like we've had a number of specifically commodities at this point in time where we talk about, oh, a perfect storm of factors have come together to drive coffee prices higher or wheat prices higher or soybean prices higher or whatever. And it's always sort of different factors. Some of them have an underlying thing in common, which would be the weather, but it just seems to keep happening. And I guess, yeah, it's weird. And I guess it makes me wonder whether or not there's something structural at play. Like maybe when it comes to certain commodities, something about the market is just less resilient than it used to be.

Joe Weisenthal (1:40)

No, you're totally right. I think back to 2021, we probably had a number of episodes where like the perfect storm in this, so the perfect storm in Lumber, the perfect storm at the ports. And it's like if you keep having perfect storms over and over again, A, maybe they're just normal storms, and B, they might reveal something underlying that maybe about the market or about the underlying good that it doesn't take much to wind up at a perfect storm.

Perfect storms aren't supposed to happen all the time.

Tracy Alloway (2:12)

Exactly. It pains me to quote Taleb, but maybe there's a sort of anti-fragile thing happening here. But I think we should dig into this, right? And I think we should look at a specific crop or commodity that has experienced a perfect storm last year. And we talked about it back then. And I think the title of the episode was actually a perfect storm for this particular crop, which is wheat.

And now, fast forward to 2022 And it's even more of a perfect storm. You still have bad weather. You still have subpar yields on crops. And now you also have what's happening in Ukraine and Russia, which has also eaten into the global market. So it's even more of a perfect storm.

Joe Weisenthal (2:55)

It's a perfecter storm.

What we do know clearly is that plantings of wheat in the US. And so just basically the pace of new crop plantings has been really dismal in 2022, which does not portend good things for the wheat supply, does not pretend good things for food inflation and food shortages to ease dramatically. So we are going to dig into what's going on. So we're going to return with a guest we've spoken to last year, with the original perfect storm in the space. We're going to be speaking with Angie Setzer. She is the co-founder of ConsusROI, which helps farmers manage their risk, hedge and so forth. And so, Angie, thank you so much for coming back on Odd Lots.

Angie Setzer (3:42)

Thanks for having me. We're just talking about how long it's been. It was just late last fall, but I'm pretty sure it's been a decade, if not more.

In the ag space, currently, it's what it feels like.

Joe Weisenthal (3:53)

Last fall feels like a really long time ago, objectively. So it is high time we had you back. So plantings for wheat, they're really dismal, right?

Angie Setzer (4:04)

Yeah, so spring wheat, so it's important to kind of, one of the fun things that I love about my job is to be able to kind of educate or kind of give you insight into all of the wonderful classes of wheat.

And so in Kansas City, in the Southern Plains, Kansas City wheat is what we call it.

The Southern Plains grows hard red winter wheat. And then in the Eastern Corn Belt, so east of the Mississippi, down to the Gulf of Mexico, up into Michigan where I am, we grow soft red winter wheat and soft white winter wheat. So we actually have farmers plant in the fall.

On the soft red winter wheat side in the Eastern Corn Belt here, specifically here in Michigan and in some of the states in the Great Lakes areas, they had a poor planting progress or poor planting weather last fall. We just weren't able to get the soybeans off in time to get the wheat in in time. Winter kind of came on a little early, so we saw a pretty significant reduction in our acreage here in Michigan and in some surrounding states. In the Southern Plains, they're dealing with a drought, so we can get to that later. But yes, in the Spring Wheat Belt, which is actually the most important because that's kind of where we really had leaned heavily on a year ago, was, okay, we can manage through, you know, this, of course, before the Russia-Ukraine situation and some of these other things, you know, we can really manage through with a tighter wheat crop if we can make sure that the spring wheat crop looks good. Well, we obviously had a major drought in the Canadian prairies and into the spring wheat areas of the United States. So spring wheat's grown in Montana, North Dakota, parts of South Dakota, and Western Minnesota. And so if you look at a summary of rainfall, leading up to about the 1st of April when planting season would kick off, they had stayed incredibly dry. So in a cruel twist of irony, we started the year concerned that we were going to see continued drought development, and we had been so exceptionally dry for so long, we were nervous about what would take place. So in true Mother Nature form over what's taken place the last couple years, she brought all of the rain that you would want to have seen in the six months prior in about six weeks' time. And so, yeah, we've seen record delays in planting specifically in North Dakota and in Minnesota. Most of them, we feel, should be close to being able to catch up prior to final planting, final insurance planting dates, the middle of this week. There was a lot of progress that has taken place. Although it took place in less than ideal conditions. And so some farmers are crossing their fingers and holding their breath that we're able to see that crop come up and get a normal year of production.