What happened to those burdensome wheat stocks?

With spring wheat prices soaring, farmers might be thinking that all that talk of huge world wheat stocks was a lie.

Well, those stocks are still there, but the rapid development of a drought on the northern U.S. Plains this year has focused traders’ minds on a portion of the wheat market — the high protein part.

Two consecutive below-normal protein U.S. hard red winter wheat crops have increased demand for high protein at the same time that a flash drought is burning up the U.S. spring wheat crop.

The hot dry weather in the forecast could also start to stress Canada’s spring wheat crop.

The panic about supply seems to have drowned out arguments we’ve heard in the last couple of years about millers being more blasé about quality and that they can adjust their practices to get adequate flour characteristics without paying high prices for protein.

The burning sun in the Dakotas has also blinded the market to those much-talked-about stocks.

Just last month, the U.S. Department of Agriculture increased its forecast for global year-end stocks for 2017-18 to 261.2 million tonnes, up 2.9 million from the previous month and up 4.8 million from the end of 2016-17. That produces a burdensome stocks-to-use ratio of 35.5 percent.

However, the global number hides important details.

Almost half of the stocks are tied up in China and are not be a factor in global trade.

However, the market knew that and ignored it as it kept wheat prices in the doldrums through most of 2016-17. Also, the global number does not provide a break down on quality, so we are in the dark as to how much high protein wheat is actually available.

For example, Agriculture Canada forecasts year end 2016-17 Canadian wheat stocks at 4.3 million tonnes, up from 4.08 million the previous year, but there is no official word on the grade breakdown or how much of that is feed. Likely a lot of it is very poor quality.

The USDA does some breakdown of its domestic wheat stocks. While overall wheat stocks at the end of the current 2016-17 crop year are expected to climb 6.74 million tonnes to 62.86 million, the hard red spring wheat component of that is expected to fall about 1.5 million tonnes to 5.85 million.

With 2017 U.S. hard red spring wheat production expected to crater because of the drought, stocks of that class by the end of 2017-18 will likely be scraping the bottom of the barrel.

The result is that the premium of the Minneapolis hard red spring wheat September contract over the Kansas hard red winter wheat contract has soared to US$2.56, the second highest on record, topped only by February-March 2008, during another panic about protein supply and at the peak of the commodity boom.

Compounding the worries about wheat supply this year is the danger that the northern plains drought will creep north into the Canadian Prairies. There is also drought in Western Australia’s winter wheat crop.

Australia’s weather service said this week that almost all of the crop area in the state of Western Australia for the most recent four months is in severe moisture deficiency, and big blocks within that area are the driest on record.

Where will spring wheat prices wind up? It is impossible to know, but the Minneapolis spring wheat contract in 2008 topped out at about US$24 a bushel.

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