By Dan Morgan
Special to The Washington Post
Tuesday, April 29, 2008
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 nightmare."
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 consumers.
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 country that grows 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 levels.
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 it.
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 soybeans.
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.