CHICAGO (Reuters) — U.S. flour millers are likely to continue using large volumes of spring wheat from the northern Plains and Canada as a substitute for hard red winter wheat over the next 12 months, given the likely shortfall in the 2014 southern Plains HRW crop, cash traders said.
U.S. farmers grow more HRW wheat than any other type, and it normally trades at a discount to hard red spring wheat, which is valued for its high protein and milling quality.
But a months-long drought in the Plains has slashed yields, with the U.S. Agriculture Department forecasting Oklahoma’s 2014 wheat yield at 18 bushels per acre, the state’s lowest since 1967. That has pushed up HRW wheat futures prices, making spring wheat a better buy.
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Spot spring wheat futures on the Minneapolis Grain Exchange closed Wednesday at a discount of 30 cents per bushel to spot K.C. hard red winter wheat futures.
“Most milling companies are substituting the maximum amount of spring wheat or Canadian wheat they can and still make a product that meets the standards of their customers,” said Frank Stone, president of the Kansas City Trading Group, a brokerage.
Canadian wheat increasingly has been added to the U.S. mill grind following a record high 2013 harvest, and more may be on the way as railroad traffic improves after a brutal winter that caused historic freight backlogs.
“We are going to see a lot of Canadian wheat, especially in the latter half of the summer. When they finally get their (new) crop planted up there and they see it’s coming on, they will start getting rid of their old-crop stocks,” said Mike O’Dea, a wheat trader with INTL FC Stone.
The USDA estimated U.S. wheat imports for the 2013-14 marketing year ended May 31 at 170 million bushels, an all-time high, much of it spring wheat from Canada. It forecasts 2014-15 wheat imports at 160 million bushels, the second-most on record.
The Canadian Grain Commission said exports of wheat excluding durum from licensed facilities such as grain elevators into the United States from August to April rose 56 percent compared with the previous year.
Most mills have the flexibility to substitute the wheat, and their biggest problem is finding transport and the quantities they need.
Underscoring milling demand for spring wheat, the USDA estimated 2013-14 use of U.S. spring wheat for food at 266 million bushels, a 13-year high, while food use for HRW wheat fell to 366 million bushels, a three-year low.
If the newly seeded 2014 spring wheat crop in the northern Plains produces at least an average yield, this substitution might continue until summer 2015, when the next HRW wheat crop is harvested.
“With the shorter (HRW) crop, it could be all through this next year,” said Rick Dusek, a vice president with CHS Inc.
