The world is awash with wheat but not milling quality wheat, say analysts.
The International Grains Council forecasts a record 743 million tonnes of production.
Global stocks are expected to reach 229 million tonnes by the end of 2016-17, resulting in a bearish 31 percent stocks-to-use ratio, which would be the highest in 15 years.
However, milling wheat supplies are actually tightening, according to an article by U.S. Wheat Associates analyst Stephanie Bryant-Erdmann that appeared in the Aug. 25 edition of its Wheat Letter publication.
Strategie Grains is forecasting European Union soft milling wheat output at 66 percent of total production, down from 71 percent the previous year.
It estimates 91.4 million tonnes of EU soft milling wheat, down 16.6 million tonnes from last year’s production.
Bryant-Erdmann said that will be partially offset by a larger Russian milling wheat crop.
Strategie Grains forecasts 48.1 million tonnes of Russian milling wheat, up four million tonnes from last year.
“Still, the expected increase in Russian milling wheat supply will only offset one-quarter of the 16.6 million tonne decrease in European milling supply,” she wrote.
Bryant-Erdmann noted that preliminary harvest data indicates protein levels are down in winter wheat crops in the United States, Russia, Ukraine and the EU and that there are potential quality problems with Canada’s spring wheat crop.
Erica Olson, marketing specialist with the North Dakota Wheat Commission, said there is no doubt the U.S. hard red winter wheat crop is of poor milling quality.
It was averaging 11.2 percent protein with about 85 percent of the samples analyzed, which is about one percentage point lower than last year.
“It’s the lowest in over 40 years. It’s pretty dramatic,” she said.
The U.S. spring wheat crop was averaging 14.3 percent protein with about half of the samples analyzed for the regional crop quality report in the four main growing states. That is slightly higher than the long-term average of 14 percent.
However, U.S. spring wheat production is expected to be 14.5 million tonnes, down about one million tonnes from last year.
Statistics Canada is forecasting 20.2 million tonnes of Canadian spring wheat production, up one percent from last year.
Olson said the big wildcard is crop quality due to the abundance of summer rain.
Derek Squair, president of Agri-Trend Marketing, said the early signs are that Canada might have quality issues.
“It looks like we’ve got a pretty good yield and we’ve got some lower protein,” he said.
Squair believes there will eventually be decent protein premiums due to the dearth of milling wheat, but it may take four or five months before they materialize.
“We’re telling our guys to segregate some higher protein to leave for later,” he said.
Olson said the futures spread between hard red winter wheat and spring wheat has increased since harvest to about $1.10 per bushel. The long-term average is about 50 cents.
So there is a significant premium between classes of wheat but protein premiums within the spring wheat class haven’t budged.
The difference between 15 percent and 14 percent protein wheat is about 20 cents per bushel, which is about typical.
Olson said that will change if Canada harvests a low protein crop or if the last half of the U.S. harvest is of poor quality.