Probably 98 percent of the time, wheat futures in Minneapolis trade at a premium to Chicago wheat futures.
From the middle of July to the first week of August, there was no premium — Minneapolis wheat futures were priced at a discount to Chicago wheat.
“(This) has happened briefly, in the past,” said Bruce Burnett, director of markets and weather information with Glacier MarketsFarm. “Mostly when there’s been strong demand for soft red winter wheat in the U.S., from an export point of view.”
The Minneapolis market is for hard red spring wheat, a higher quality grain than the soft red winter wheat traded in Chicago. Under normal conditions, the Minneapolis contracts is valued at a US 40-60 cent per bushel premium to Chicago wheat.
And, on occasion, the premium has been as large as $1.50 – $2 per bu.
For about three weeks, Chicago wheat futures were around $5.30 per bu. Minneapolis futures ranged from $5.10 – $5.20 per bu.
On Aug. 10, Chicago wheat closed at $4.9150 per bu., still above the Minneapolis price of $4.0950.
The situation was abnormal and brief, but there is an explanation. Global supply and demand for wheat has a greater influence on the Chicago price, Burnett said.
“Whereas, Kansas City and Minneapolis – those are more domestically oriented contracts,” he said.
There was a dreadful wheat crop in much of Europe, as farmers in France, Romania and England are generated poor yields this summer. That supported Chicago futures and pushed prices upwards in July
France’s soft wheat output is expected to drop by 25 percent, Bloomberg reported in late July.
A drought damaged Romania’s wheat crop, which could be the smallest since 2012.
“That limits the surplus (of Romanian wheat) to be sold abroad,” Bloomberg said.
“While less severe, Ukraine’s crop also suffered some setbacks from dry spells.”
As European farmers were struggling with difficult conditions, the spring wheat crop in North Dakota and Montana has improved. In June, market watchers were worried about dry weather in the Northern Plains. However, rains came and the crops flourished.
As of July 26, 64 percent of North Dakota’s spring wheat crop was rated as good to excellent, based on the U.S. Department of Agriculture crop progress report. Conditions in the Northern Plains, combined with decent looking crops on the Prairies, weighed on prices in Minneapolis.
Another factor is the quality of America’s hard red winter (HRW) crop. Earlier in the summer, protein levels in HRW samples were disappointing. After reviewing 25 percent of the samples for the 2020 crop, in early July the U.S. Wheat Associates reported average protein levels of 11.2 percent — well below the five-year average of 11.7 percent.
Since then, there’s been an uptick in protein. For the week of July 31, HRW samples had an average protein of 11.9 percent and South Dakota farmers described it as their best wheat crop ever, the Wheat Associates said.
However, there could be a shortage of high protein spring wheat in the Northern Plains.
Jim Peterson, policy and marketing director for the North Dakota Wheat Commission, predicted in July that Montana and North Dakota would have a high yielding but low protein wheat crop.
That would reduce the national protein average in the U.S. and bolster demand for higher protein wheat. That should restore the traditional price spread between wheat futures in Minneapolis and Chicago.
Until that happens, farmers need to remember one thing, Burnett said.
“This does not necessarily mean that spring wheat is worth less than soft red winter wheat,” he said. “Export values are still higher for higher protein wheats. So, the basis levels have compensated a little for this.”