Spring wheat protein premiums have crashed in the wake of reports of high protein U.S. winter wheat and spring wheat crops.
Canadian Wheat Board market analyst Neil Townsend said demand is also a factor. After years of dealing with poor quality wheat crops, millers have learned to adapt their flour recipes to use substitutes.
“Longer term, that’s why a lot of people are very scared about what’s going to happen to the quality premiums because they just think the last five years have really done a lot of damage to the depth of that market,” he said.
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Price spread between U.S. spring wheat with 15 and 13 percent protein was more than $4 per bushel for a period this summer.
“Right now, that spread at the local elevator level is probably less than a buck,” said Jim Peterson, marketing director for the North Dakota Wheat Commission.
The premium could evaporate altogether if protein levels on the U.S. spring wheat crop remain high as harvest continues, he said.
Premiums began to shrink as reports of the hard red winter wheat harvest started rolling in. The harvest is now complete. Drought hurt yields, but the average protein level is 12.5 percent, well up from last year’s 11.8 percent average.
The spring wheat harvest has just begun. Protein levels on the first 38 samples tested in the latest U.S. Wheat Associates harvest report averaged 15.5 percent, well above last year’s 13.9 percent average.
Peterson said the results are somewhat skewed because the first samples taken are from the southern part of North Dakota and into the Red River Valley region, where yields are in the 30 to 40 bu. range due to the extremely soggy spring conditions.
He expects yields will rise and protein levels will fall as harvest moves to other parts of the spring wheat growing region, where there are already reports of 60 to 65 bu. per acre crops with 13 to 13.5 percent protein.
But based on the early results and the fact that there were more protein-building heat units than normal this growing season, he isn’t optimistic that premiums will rebound soon.
“Those factors point to a higher protein crop than the last couple of years,” he said. “Protein is certainly going to have quite a bit lower value.”
With a good quality winter wheat crop at their disposal, U.S. flour mills are less reliant on high protein spring wheat. They don’t need it to boost the protein level of their flour to the desired 11 percent.
Growers are still hauling what they have to the local elevator in hopes that they can capitalize on higher-than- normal spring wheat prices before a feared recession.
Townsend said that is a prudent approach.
“Futures levels are very high and one could build quite a strong argument that they shouldn’t be this high because of the relative abundance of wheat in the global context,” he said.
It is too early to get a bead on protein levels for Canada’s spring wheat crop. Townsend said that on the one hand, there should be plenty of high protein crops in Manitoba’s Red River Valley region, which experienced a hot summer.
Twenty-five percent or more of the crop north of the Trans-Canada Highway is green and needs a lot of hot weather to finish properly.
The CWB’s best guess at this point is average to slightly above average protein levels for the 2011 crop.
