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As stated more than a year ago, GMO wheat is a corn grower issue, too (Nov. 2, 2003 -- CropChoice news) -- Editor's note: Given the recent study by ISU economist Robert Wisner on the potential economic downsides of allowing commercial planting of Monsanto's genetically engineered wheat (see that story at http://www.cropchoice.com/leadstry.asp?RecID=2173 ), now seems like a good time to revisit a 2002 commentary by American Corn Growers Foundation CEO Dan McGuire on how GMO wheat could affect corn growers.
By Dan McGuire
(July 22, 2002 -- CropChoice guest commentary) -- Some might ask whether American corn producers should be concerned about the introduction of GMO (genetically modified) wheat. They should, for a number of reasons. Perhaps the most important is the negative impact that GMO wheat is likely to have on the demand for and price of corn. Given the fact that wheat importers, millers and bakers from Asia to Europe have warned the United States and Canada that they do not want, nor will they buy GMO wheat, where is that wheat likely to end up if U.S. and Canadian farmers deicide to grow it? The most likely answer is U.S. livestock feeding or industrial use channels such as ethanol plants. I place the reasons why GMO wheat will displace corn and other feed grains in the livestock feeding market in three categories: Research on wheat feeding; U.S. grain standards and U.S. farm policy:
Research on wheat feeding
Evidence that wheat will end up in livestock feed when the corn/wheat price relationship favors it is best described by research from three land grant universities: Oklahoma State University; Kansas State University and the University of Nebraska which report:
The above information provides just a minor glimpse at why "unwanted" GMO wheat may displace corn in both livestock feeding and industrial markets.
U.S. Farm Policy
A quick review of farm policy, wheat prices and wheat feeding to livestock is enlightening on this issue. The following statistical information comes from various reports by the United States Department of Agriculture. In marketing year (MY) 1983/84 the average price that farmers received for wheat was $3.51/bushel and the average price of corn was $3.25/bushel. However, the average price of hard red winter (HRW) wheat was $3.34/bu. in July of 1983 during wheat harvest. With the narrow spread between the wheat and corn price, the quantity of wheat used for livestock feed jumped to 371 million bushels, from 195 million the year before. The national average price of wheat dropped to $3.39 in MY 84/85 but the July harvest price of HRW was $3.30/bushel. The national average corn price ranged from $2.70 in April of 1984 to $2.44 in August and the number of bushels of wheat used for livestock hit 407 million for the 1984/85 marketing year. Corn prices dropped to an average of $2.23/bu. in MY 85/86. Wheat averaged $3.08 so wheat feeding dropped to 284 million bushels.
The 1985 Farm Law: The wrong-headed low loan rate policy in the 1985 farm law set an increase in wheat feeding in motion as the wheat loan rate was the first to drop, from $3.30 to $2.40, wrecking the historical balance there had been between the wheat loan rate and that of other commodities. And since the loan rate became effective with the new wheat marketing year that began June 1 (rather than September 1 for corn), the average market price of HRW dropped to $2.19 in July of 1986 and below $2.00 in some western Nebraska locations, where large feedlots are located. The quantity of wheat used for feed jumped to 401 million bushels in MY 1986/87. Since the low wheat prices directly resulting from the low loan rates in the 1985 farm bill failed to increase wheat exports as promised, wheat feeding stayed at near 300 million bushels in MY 1987/88, displacing corn demand.
The 1990 Farm Law: The next agribusiness-oriented farm law came in1990, causing wheat feeding to soar again. The wheat loan rate dropped from $2.06 to $1.95. The average market price was $2.61/bushel for all wheat but HRW dropped as low as $2.36 that year and the quantity of wheat fed to livestock hit nearly half a billion bushels, considerable competition for corn.
The 1996 Farm "Freedom to Farm" Law: The wheat loan rate remained at $2.58 from MY 1995/96 through MY 2001/02 and wheat feeding averaged 274 million bushels for that 7-year period. However, low U.S. wheat prices have not increased foreign demand and wheat exports have languished during this same period, dropping all the way down to 887 million bushels in the just-ended 2001/02 wheat marketing year.
The 2002 Farm Law and GMO Wheat: Now that policy makers developing this new farm law finally realized the failure of the past 17 years of the wrongheaded farm policy and raised the wheat loan rate to $2.80 per bushel, "rebalancing" it with corn and other loan rates, along comes the prospect of GMO wheat to put upward pressure on un-exportable wheat inventories and downward pressure on wheat prices. Simply put, if GMO wheat cannot be exported to traditional customers (from both the U.S. and Canada) it is most likely to go looking for a home in the U.S. feed market, competing with corn.
U.S. Grain Standards
As of data current in the Federal Register dated July 18, 2002 wheat is defined as: "Grain that, before the removal of dockage, consists of 50 percent or more common wheat (Triticum aestivum L.), club wheat (T. compactum Host.), and durum wheat (T. durum Desf.) and not more than 10 percent of other grains for which standards have been established under the United States Grain Standards Act and that, after the removal of dockage, contains 50 percent or more of whole kernels of one or more of these wheats." There are eight classes of wheat. Since it has been reported that the first GMO wheat to be introduced is likely to be of the class Hard Red Spring (HRS) wheat, (grown primarily in the Dakotas, Minnesota and Montana) it’s worth examining HRS a little more closely. HRS is subdivided into three subclasses: Dark Northern Spring (DNS) wheat which is,"Hard Red Spring wheat with 75 percent or more dark, hard and vitreous kernels"; Northern Spring (NS) wheat which is "Hard Red Spring wheat with 25 percent or more but less than 75 percent dark, hard and vitreous kernels."; and Red Spring wheat which is, "Hard Red Spring wheat with less than 25 percent of dark, hard and vitreous kernels."
The U.S. grain standards allow 3 percent "wheat of other classes" in No. 1 grade wheat; 5 percent "wheat of other classes" in No. 2 grade wheat; and 10 percent "wheat of other classes" in No. 3 grade wheat. This encouragement for the blending of various classes of lower value wheats, while still being able to ‘make grade’ is a potential concern. DNS (HRS) wheat, along with Canadian Western Red Spring (CWRS), is considered the "Cadillac" of wheats for milling and baking purposes in Europe and other markets…the very same markets that have already stated that they will not buy GMO wheat and that the U.S. should not introduce it. GMO-HRS wheat cannot be isolated to the areas where it is grown. Even if some market, somewhere wanted it, strictly identity-preserving it is not possible. Consider that during the winter months, when the Great Lakes ports are closed, HRS wheat is transported to either Gulf or Pacific ports. There are plenty of cases where low quality HRS wheat has been blended with HRW wheat for export, and the grain trade are masters at exploiting the allowances in the wheat grade standards, through blending, to maximize their profits. If that would happen with GMO-HRS wheat, markets for HRW wheat would also be killed. All that wheat would likely then go to livestock feed, hurting corn demand and prices. This is why GMO wheat is a corn grower issue!
About the author: Dan McGuire was Agency Director of the Nebraska Wheat Board for 12 years and Executive Director of the Interstate Agricultural Gain Marketing Commission for 6 years.
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