Weather keeps wheat class spreads in flux

Farmers will have to wait at least one more year to determine the “normal” spreads between prairie hard red spring wheat and the other wheat classes they are able to grow.

Analysts say the spreads between hard red spring and hard red winter, as well as between other classes and divisions within each class, will be volatile this year because wildly different weather conditions are affecting crops across North America.

“This could go in a lot of different directions,” said Austin Damiani of Frontier Futures in Minneapolis.

Drought in the U.S. soft red winter areas has been alleviated but is still a concern in the southern Plains where hard red winter wheat is grown. The hard red winter area has also recently been hit by severe cold weather, which has caused damage.

As well, the hard red spring wheat area is facing late seeding and possible flooding.

“This all depends on what happens when Canada and we here in the Dakotas get seeding, and how much damage there has been to hard red winter, and that’s not clear,” said Mike Krueger of the Money Farm.

The situation is vexing for prairie farmers because many who are able to grow winter wheat are trying to assess relative returns compared to hard red spring wheat.

Winter wheat tends to have higher yields than spring wheat. During the Canadian Wheat Board single desk era, hard red spring carried a substantial premium to most other types of wheat, offsetting winter wheat’s yield edge.

However, hard red spring often had quite different spreads to hard red winter in the United States: from no premium to premiums well above CWB pool prices.

Some on the Prairies felt they would be able to get better hard red spring premiums without the wheat board, while others thought there weren’t premiums and eliminating the CWB monopoly would allow them to get better prices for non-hard red spring wheat. Many weren’t sure either way.

Prairie wheat prices have arbitraged to close to U.S. values since the CWB lost its monopoly, but U.S. values have been anything but normal since before the monopoly ended.

The devastating drought that ravaged the U.S. Midwest last year caused a surge in the value of both soft and hard red winter wheat values. That closed much of the gap with hard red spring for the fall and early winter.

Hard red spring’s premium relative to the other wheat classes has improved in recent weeks, mainly due to slow winter wheat exports.

But then spring freezes hit the hard red winter area and spring came late to the Dakotas and the Canadian Prairies.

Krueger expects the spread be-tween winter and spring hard wheat to narrow. Hard red winter could once more become everybody’s favourite wheat.

“Kansas City (hard) wheat is at a 30 to 40 cent premium to Chicago (soft), and I think that’s too narrow. I would think the spread between Kansas City and Minneapolis will narrow too,” said Krueger.

“We know there’s frost damage (to hard red winter). They’ve had a drought. And people there say they need a week of warm weather to see what kind of damage there is.”

Coming weeks will reveal the damage done to hard red winter, the state of prairie seeding and the situation of soft red winter, with all those factors influencing North American prices. World wheat production will also affect the spreads.

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