Premiums could widen for high protein

While global supply is healthy and yields look promising, there are reports of a significant drop in protein levels

The world is set to harvest a bumper wheat crop but it could be low in protein, according to an analyst.

Wheat crops are in good shape in most major production regions with the exceptions of China and India, said Bruce Burnett, weather and crop specialist with G3 Canada.

The United States Department of Agriculture forecasts 731 million tonnes of world production, which would be the second biggest crop in history.

“To be blunt, there is no shortage of wheat in the world, so that’s going to be the environment here that we’re going to be looking at for most of this marketing year,” Burnett said.

However, U.S. Wheat Associates points out that global consumption is expected to set a new record for the fourth consecutive year.

The difference between production and consumption is projected to be 14.9 million tonnes in 2016-17, down 44 percent from the previous year.

“With global supply and demand closer to equilibrium, albeit with abundant supply, weather news going forward will likely be the source of some price fluctuations,” said USW in its June 16 Wheat Letter.

“Nearly all of the major winter wheat producing regions received adequate or even excessive moisture this year with the notable exception of India and Morocco.”

The U.S. winter wheat crop is in exceptional shape due to those plentiful rains, said Burnett.

The USDA is already forecasting record winter wheat yields of 50.5 bushels per acre with harvest just underway.

“I wouldn’t be surprised if it gets even larger as they move through the harvest,” he said.

“It’s not uncommon for farmers to have twice the yield that they had last year in some of the worst drought-affected areas and maybe even more than that.”

Abysmal protein levels are accompanying the record yields.

“You’re looking at a pretty significant drop off over the last few years,” said Burnett.

USW reports that initial hard red winter wheat samples out of Texas, Oklahoma and Kansas had an average protein level of 11.1 percent. The five-year average is about 12.7 percent.

“I think you’ll probably see protein values start to widen out a little bit,” he said.

But a lot will depend on how the spring wheat crop turns out in the U.S. and Canada. If the North American crop is plentiful and has average protein levels, there likely won’t be much change in the spreads.

So far, growing conditions have been excellent in the spring wheat region with plenty of moisture in the early part of the year, which could result in a high-yielding crop.

“I would say probably we’re looking at lower protein levels but that has a lot to do with what kind of weather we get over the next months,” said Burnett.

There have also been good moisture conditions in the Black Sea region and the key wheat growing regions of the European Union. The rains are boosting yield prospects and reducing protein levels.

There are mounting concerns about crop quality in places like France, which received double its normal moisture levels in May. France is the EU’s largest wheat producer.

FranceAgriMer recently rated 71 percent of the French soft wheat crop in good to excellent condition, down from 75 percent the previous week.

There are also quality concerns in Germany and Russia due to excess moisture. Burnett said the main concern is disease pressure and the inability to get sprayers onto fields.

Australia’s wheat crop is in good shape. The Australian Bureau of Agricultural and Resource Economics and Sciences is forecasting a five percent increase in production despite a one percent decline in seeded area.

Bloomberg reports that persistent rain caused by El Nino has damaged wheat crops in China.

Analysts report that 10 million tonnes could be downgraded to feed and production is forecast at a five-year low of 107 million tonnes, down from 130 million tonnes last year.

Burnett is more inclined to believe the USDA estimate of another 130 million tonne Chinese crop. He thinks the downgrading of 10 million tonnes will create no extra demand for milling wheat imports.

“A certain portion of that crop is used as feed anyway. It’s not all millable every year,” he said.

India is one country where the wheat crop has been a disappointment. Traders forecast it will need to import five million tonnes of the crop, the most in 10 years.

Morocco also has a serious deficit. USDA estimates it produced 2.6 million tonnes of wheat, down 67 percent from a year ago.

Morocco’s durum crop is expected to be about 60 percent smaller than the previous year due to drought.

G3 Canada reports that the European durum crop is facing the risk of significant downgrading due to harvest rains.

That is why G3 boosted its projected returns for durum in its latest pool return outlook, while lowering wheat projections.

Durum is up $2 per tonne in the early delivery pool, while wheat fell $7 to $8 per tonne.

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