Eastern Washington wheat farmers say a run-up in wheat prices in recent weeks is being caused primarily by the severe Midwest drought, as more livestock operators prop up feed supplies with the grain to offset dwindling corn crops.

Meanwhile, industry leaders don't expect this year's wheat production statewide to match the bumper crop of 167.8 million bushels in 2011, but they say conditions favor above-average yields and high quality this year.

The U.S. Department of Agriculture has estimated the state's wheat crop this year at 145 million bushels, which is about 6 percent higher than the average yield in recent years.

Wheat prices for soft white wheat, which is the variety grown mostly in Eastern Washington, have risen from an average of $6.27 per bushel in January, to $6.97 in June, and $8.53 in July.

Glen Squires, CEO of the Spokane-based Washington Grain Commission, says the hike of about $3 a bushel in recent months will be good for farmers if prices remain high, although he adds wheat producers don't necessarily sell entire crops at once and sometimes store a portion of their grain.

"Each month, the USDA has lowered production estimates for corn, and a lot of that goes into (livestock) feed and into export," Squires says. "Last year, a lot of wheat went into feed because there wasn't enough corn. The same is likely to happen this year."

Meanwhile, he says farmers' costs such as for fuel, fertilizer, and equipment have risen. Almost 90 percent of Eastern Washington wheat is exported for use in products such as cookies, crackers, and flat breads consumed by people, but it also enters the food chain for livestock in the U.S. and abroad.

Squires cites the example of South Korea, which normally imports about 800,000 metric tons of soft white wheat from the Pacific Northwest a year, he says. "Last year, South Korea imported 1.4 million metric tons from the Pacific Northwest of soft white wheat, and a lot of that went toward feed in South Korea, because there wasn't enough corn to import."

Squires adds, "While corn prices rose because of scarcity, wheat has risen because of increased demand. Then there are concerns in Russia and Ukraine with crop conditions, and maybe they're not going to have as much wheat to export because it's dry there."

He and other industry observers say global competition, the Midwest's impact, and greater activity among investors trading in commodity futures are among the factors influencing current wheat prices. The investors don't intend to make or take delivery of the commodities, but instead they buy commodity contracts such as for wheat or corn with the intent of selling them at a higher price later.

"There are some really interesting market movers going on," says Eric Maier, president of the Washington Association of Wheat Growers, who also farms outside of Ritzville. "Overall, the biggest impact is the drought in the Midwest and less corn production. Australia and Russia are also dry."

Maier adds, "Rumor mills run in agricultural markets as well as in other markets, and investors will take money and buy corn or buy wheat contracts for down the road. Once the yields are in, sometimes they're better than they thought, then you'll see a drop-off in prices."

He says the market also is influenced by export demand in the fall. He adds that U.S. wheat typically sells higher because it's a higher milling-quality wheat than most countries can produce.

Randy Suess, who serves as chairman of U.S. Wheat Associates and is a commissioner with the Washington Grain Commission, farms 1,350 acres north of Colfax, predominantly growing soft white wheat.

"It's definitely going to be a good crop," Suess says. "This run-up of prices is great for farmers; it's a great price and a good crop. It's usually one or the other and not both."

However, he adds, "Although this is a good year, and we're looking at good prices for our wheat, we have had record expenses. It used to be diesel was extremely cheap and now it's about 30 or 40 cents higher than gasoline. Seed has gone up."

Suess says other examples include rising costs for fertilizer, chemical products to control weeds and crop disease, and equipment.

"John Deere has already announced prices for next season," he says. "I've got a 4-year-old combine that has a $600,000 replacement cost, and with a 4.5 percent increase expected for next year's harvest, it would cost $627,000."

He adds, "I just locked in my fertilizer prices in for this fall. All I can see is fertilizer prices going up."

Suess estimates he spends about $75 to $100 per acre on average for fertilizer.

"We have the highest expense we've ever had before," he says. "I feel for people who didn't have a crop like the people in the Midwest. If we go back to $5 a bushel, we'll all be out looking for a job."

Another impact cited by Inland Northwest farmers is the amount of corn that must go toward U.S. ethanol fuel production.

Dana Herron, co-owner of a family farm and Tri-State Seed Company LLC, both in Connell, Wash., says members of Congress debated a temporary lifting of federal requirements for ethanol production before their August break, but didn't take action.

"Corn is the primary feed grain, and when the corn supply is short because of the drought, the demand for that corn doesn't go away," Herron says. "There are 5 billion bushels of corn annually used by the ethanol industry for our renewable-fuel standards."

Meanwhile, with a shorter supply of corn, many cattle and dairy operators start adjusting feed toward wheat. He says increased demand from feedlots is already happening.

"Feedlots south of me are buying wheat hand over fist, as fast as they can," Herron says. Soft white wheat grown in Eastern Washington tends to have a high percentage of protein, and thus energy.

He says he has watched the wheat price run-up for about six weeks, which he adds is going up in sympathetic response to rising corn prices. "When the USDA did their crop estimates, that spurred more competition, more buying for wheat, and prices rose."

Bad weather, however, hasn't totally missed Northwest farms. Herron says a May 10 frost in Connell and the lower counties of Franklin, Benton, and Adams affected wheat there that was in an earlier growth cycle than the crops planted north of Interstate 90. Connell is 100 miles southwest of Spokane along U.S. 395, a common route to the Tri-Cities.

Herron grows primarily hard red winter wheat used mostly in bread. Herron's seed company also sells seed products for corn, alfalfa, oats, barley, and wheat.

"Our wheat is planted first, and our wheat was farther along in its cycle," he says. "The frost killed some of the spikes of the wheat, so instead of having an average yield, many were below average yield. We're pretty much done with harvest, and we were at 20 to 25 percent damage from the frost."

He adds, "Statewide, we're going to have a great crop. It's a good time to be in agriculture if you are in the Pacific Northwest. It's unfortunate that we can take advantage of these high prices when our friends in the Midwest can't, but it could be us next year."

An Aug. 10 estimate by USDA lowered the agency's estimates for U.S. corn and soybean production for the second consecutive month. The government agency predicted what could be the lowest average corn yield in more than 15 years because of Midwest drought conditions.

The USDA estimated projected U.S. corn production at 10.8 billion bushels, down 17 percent from its forecast in July of nearly 13 billion bushels.

The weekly U.S. Drought Monitor map recently showed that drought conditions continue to worsen in the Midwest, and the U.S. corn belt states of Ohio, Illinois, Indiana, and Iowa are all suffering from severe dry conditions.

U.S. farmers had planted a larger supply of corn this year, at more than 95 million acres, the Northwest Grain Growers website says.

"It's been going on for about a year, the use of wheat for some feed," says Scott Yates, Washington Grain Commission communications director. "We were all under the impression that corn prices would go down because of the amount of corn that was planted, and then we had this flash drought and Mother Nature turned everything on its head."