The British vote to leave the European Union is having ripple effects in America’s heartland.
More specifically, the wheat fields of Kansas.
“They screwed up our wheat market,” said Lane County farmer Vance Ehmke from his farmstead near Dighton where custom cutters are cutting a high-yielding wheat crop.
“I’m not in a very good mood today about our friends in England,” he added, then chuckled. “I can see why our forefathers kicked their ass out of the United States. That was a good move, guys.”
But in all seriousness, Ehmke noted commodity prices already are depressed. Wheat on Tuesday was $3.45 at the local cooperative. By Friday morning, it dropped 20 cents.
It takes about $4 a bushel on 60-bushel wheat to break even. While a few have reported yields of less than 50 bushels an acre, much of western Kansas is seeing a bumper harvest, with yields of 60 to 90 bushels an acre a norm.
Still, that doesn’t leave a lot of money to be made on this crop.
Britons voted to leave the European Union over concerns that included immigration and regulation. It’s far from clear what that will mean for international trade or for Europe, as the EU, which was formed in the decades following World War II, has never before lost a member state, according to The Associated Press.
Corn, soybeans and wheat fell Friday morning from the announcement, said Walt Breitinger, a commodity futures broker with Paragon Investments in Silver Lake.
He added that cattle futures also collapsed to a four-year low as well, trading under $1.14 per pound.
Beef demand has been waning recently, he said, and there is an old saying about stocks and steaks: The falling stock market could drop demand for high cuts of beef if the nation becomes more frugal.
Energy prices also are dropping – including oil and ethanol. Meanwhile, the U.S. dollar remains strong as the euro and pound drop, making it difficult for the U.S. to export commodities like corn, wheat and beans, said Breitinger, who writes weekly commentary with his brother, Alex, for KansasAgland.com.
Friday’s drop seemed to be highly influenced by Britain’s vote, Breitinger said.
He added farmers should have “sold aggressively days ago, weeks ago,” he said. “What I would say to farmers is they should be putting reasonable hedge programs in place.”
Darren Wicks, a financial adviser with Edward Jones in Hutchinson, noted that the United Kingdom is only 4 percent of the world economy.
As, he said, “We think the economic impact will be much less than how the market is reacting because it will take two or three years for them to completely separate themselves.”
What he said he was seeing Friday – just a few hours after the market opened for trading – was a “knee-jerk reaction.” He noted that Britain will still have an economy. They see it as a short-term event.
He added now is a good opportunity for investors to buy in the market.
“The average person needs to be investing,” said Wicks. “This is a good opportunity.”
EU situation or no EU situation, Ehmke doesn’t see commodity prices climbing much anytime soon. He projected it could be a tight next couple of years, noting the strong dollar is why there is so much cheap grain.
“The dollar is incredibly strong, and it makes our exports high-priced,” he said. “It’s just poetic that along with a very high dollar we are having a wonderful crop over here and some surpluses are mounting like crazy and our carryovers are high.”
It is a recipe for low prices, Ehmke said. Farmers have been feeling the impact for a few years.
Kansas’ net farm income in 2015 hit a 30-year low, reaching a level not seen since the 1980s farm crisis. Accrual net farm income across 1,159 Kansas Farm Management Association farms averaged $4,568, drastically down from a five-year average of $120,000.
Input prices are coming down, Ehmke said, including cash rents and land values. Anhydrous ammonia dropped from its peak of $900 a ton to $500.
Farmers will make adjustments through the down cycle, he said.
“It’s halftime and wheat farmers are in the locker room – what the hell are we going to do?” Ehmke said, later adding, “I feel like a pheasant on opening day.”