Shortage of quality wheat finally stirs up market

The March Minneapolis spring wheat contract moved into an inverse last week, indicating stronger demand for quality wheat.

There is lots of wheat in the world, but many production areas had weather problems that hurt protein or damaged quality.

The Minneapolis spring wheat contract reflects the value of quality spring wheat with 13.5 percent protein or higher. (The United States measures protein on a 12 percent moisture basis, while Canada measures its at 13.5 percent moisture.)

As this column was written Dec. 19, the March Minneapolis contract had a premium of 3.25 cents per bushel over May. That is not much and the price, US$5.42, is likely a lot less than farmers would think, given the production problems in Canada, France and elsewhere.

But the premium for March shows the market would prefer delivery now over delivery later in the crop year.

The Minneapolis March-May inverse has the following impact on Canadian prices.

The website says that in southeastern Saskatchewan, the cash price for immediate delivery of No. 1 Canadian Western red spring wheat at 13.5 percent protein is C$6.28 per bushel, or 97 cents under the March futures. The price for March delivery is $6.35 or 89 cents under the March futures.

A different spread in the futures market, the one between Minneapolis and Chicago, reveals the premium for protein.

Back in summer, the spread between high protein Minneapolis spring futures and the low protein Chicago soft winter wheat contract ranged between 40 and 50 cents a bushel in favour of the Minneapolis contract.

At the start of this week, the Minneapolis premium was about $1.37, the highest since the summer of 2014.

Canadian wheat exports are well behind the pace set last year, likely due to the difficulty in blending and putting together large shipments of quality buyers want.

At the end of week 19 of the crop year, Canada had exported 5.18 million tonnes, down about 20 percent from the 6.59 million tonnes moved at the same time last year.

The performance so far this year is also more than a million tonnes less than in the previous two crop years.

Last crop year, in a highly unusual move Canada exported more wheat than the U.S. Canada had lots of quality wheat and the ability of the U.S. to compete was hampered by its strong currency.

The U.S. wheat export picture has rallied back this year, even with the headwinds from its strong dollar.

In the U.S., wheat crop year, which starts June 1 two months before Canada’s begins, cumulative exports are 13.47 million tonnes, up from 10.45 million at the same point last year.

Of that, 5.97 million tonnes is hard red winter wheat and 3.98 million is hard red spring.

U.S. hard red winter wheat ex-ports are 25 percent ahead of the five-year average and hard red spring exports are 29 percent ahead of the five-year average.

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