The U.S. produced high protein winter and spring wheat crops, limiting the chance of protein premiums
Australian wheat farmers have been hit by a double whammy of disappointing yields and poor protein levels, but don’t expect that to bolster protein spreads in North America, says a market analyst.
The damage caused by drought in Western Australia has been well documented. The U.S. Department of Agriculture is forecasting 21 million tonnes of wheat production, down from last year’s 29.5 million tonne crop.
However, there has been little market chatter about the quality of the Australian crop. The country’s top quality wheat is grown in southern Queensland and northern New South Wales, two states in eastern Australia where drought hasn’t been the problem.
“They got water and rain at the wrong time and that did reduce their protein,” said Neil Townsend, director of CWB Market Research.
Newspaper reports out of Australia confirm that the supply of top quality wheat from the world’s second largest wheat exporting nation will be tight.
Townsend said that might send more business Canada’s way, but Australia’s restricted supplies will be more than offset by the glut of high protein wheat in North America.
“It doesn’t look like there’s going to be quite enough crunch to send the prices spiraling,” he said.
Canada’s 2012 crop had about average protein content, but the U.S. crop was far better than usual.
The U.S. hard red winter wheat crop had an average protein level of 12.6 percent, up from the five-year average of 12 percent. As well, the hard red spring crop had an average of 14.7 percent, up from the five-year average of 14.1 percent.
Townsend said the market appears to be more focused on the ample supplies of high protein wheat in the United States than it is on the deficit in Australia.
He doesn’t see the spread between Minneapolis and Chicago wheat widening in the coming months.
“If anything, that’s just going to get more narrow as we go along because the perception is there’s lots of protein in North America,” he said.
That market attitude is likely to be bolstered by early signs of another drought in the hard red winter wheat growing region of the U.S.
The crop is in the worst shape heading into dormancy since crop condition ratings first started in 1986. More hot and dry weather is on the way, according to forecasters.
A dry growing season would likely result in another high protein U.S. winter wheat crop.
“I don’t see much upside for the protein right now,” said Townsend.