Protein spreads for wheat will likely shrink because of a small but good quality U.S. winter wheat crop, say analysts.
Early harvest results from Texas and Oklahoma indicate high protein wheat this year.
“Protein is very good at around 14 percent,” said Arlan Suderman, senior market analyst with Water Street Advisory.
“Normally we’d be shooting for 12 to 12.5 percent.”
Suderman expects the Kansas wheat crop will also have high protein content because of early season drought conditions.
The U.S. situation doesn’t bode well for Canadian spring wheat producers, said Bruce Burnett, CWB weather and crop specialist.
“That will serve to compress the protein spreads,” he said.
“(However), we do have an impact on that if we don’t produce a lot of high protein wheat in the northern (U.S.) Plains or Canadian Prairies.”
The protein content of Canadian wheat has been below average the past couple of years, and that may be the case again this year because of the wet conditions.
“I would say you’re looking probably this year right now at a lower-than-average protein crop in Western Canada,” said Burnett.
The U.S. winter wheat crop may be high in protein content, but the yields are disappointing.
The U.S. Department of Agriculture sees 52.85 million tonnes of winter and spring wheat production in 2014-15, which would be the third smallest crop in the last 25 years.
Suderman believes it will eventually be even smaller because of the drought-damaged hard red winter wheat crop.
The USDA is forecasting 19.6 million tonnes of hard red winter wheat production, down 700,000 tonnes from its May forecast.
“They’re getting closer. They don’t have it right yet, but they’re getting closer,” said Suderman.
He is forecasting 18 million tonnes of hard red production, but it could be less if late-season rain boosts abandonment rates.
Suderman recently conducted a two-day tour of wheat crops in Kansas.
“What we saw is a lot of wheat that is eight to 10 inches tall, knee-high at the most, and very thin,” he said.
And the Kansas crop is in better shape than the one in Oklahoma.
“Ironically, we’re going from one of the worst droughts on record to persistent rain, and we’re getting a flush of weeds in that thin wheat,” said Suderman.
The rain is causing late-season tillers, so while most of the heads are ready for harvest, the late plants are at the flowering to milk stages. This creates tremendous harvest headaches for growers.
Suderman is not overly bullish about wheat despite the dismal condition of the U.S. winter wheat crop because it doesn’t appear as if global stocks will be tight this year.
“We’ll probably see this market bounce here fairly soon, but I don’t see new highs anytime soon unless a problem develops in another part of the world,” he said.
MDA Cropcast, a forecaster that uses satellite technology to gauge yields, thinks Russia could be one of those problem areas. It sees conditions that are similar to 2010 and 2012, which were two poor production years.
The firm is forecasting 45 million tonnes of Russian wheat production, which is well below the USDA’s estimate of 53 million tonnes.
Other analysts don’t expect serious issues in Russia.
Suderman works with Commodity Weather Group, which has not noticed any similarities to 2010 and 2012 and is optimistic about recent rainfall in Russia’s dry regions.
He also said concerns about El Nino sapping yields in eastern Australia have eased with reports that it will be a weak event.
“At this point it’s difficult for me to come up with a real bullish case. As much as I’d like to, I don’t see it yet,” he said.