Price discounts are likely to appear on low protein spring wheat this year due to shifting market fundamentals, say market analysts.
“One of the big hindrances is the current protein levels on our winter wheat harvest have been just tremendously high,” said Jim Peterson, marketing director of the North Dakota Wheat Commission.
The U.S. hard red winter wheat crop has an average protein level of 13.1 percent based on 390 of an expected 500 samples, according to U.S. Wheat Associates.
That is up from 12.6 percent last year and well above the 12 percent stipulated in most winter wheat contracts.
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A high protein winter wheat crop means U.S. millers won’t have to blend in spring wheat to boost protein levels in their flour.
Most of the carryout from 2012 was also high protein wheat.
“From a domestic milling standpoint in the U.S. there is no shortage of protein,” said Peterson.
However, the 2013 winter wheat crop has low test weights, so grade factors could be more of a pricing point than protein this year.
“If you have a good grading (spring) wheat with average protein that’s probably where there’s going to be some pretty good value,” he said.
Dave Reimann, market analyst with Cargill’s Grain Marketing Services, said protein spreads will likely reappear in 2013-14 after a one-year hiatus but he agreed the spread is more likely to come from discounts to low protein wheat than premiums for high protein wheat.
The spread between 13 percent and 15 percent spring wheat in the U.S. Pacific Northwest was as high as $3.30 per bushel in the summer of 2011.
It has shrunk to less than 50 cents today due to the exceptional quality of the 2012 global wheat crop.
“Pretty much any major wheat producing area seemed to have hot and dry conditions, which resulted in fairly high protein levels right across the board and so the protein premium disappeared,” said Reimann.
“This seems to be shaping up as a much different year from 2012.”
Weather conditions have been variable in key wheat exporting and production regions.
China is reporting significant winter wheat problems, the U.S. soft red winter wheat has been hit by heavy rain and there have also been challenges in the Black Sea region and Ontario, said Reimann.
“It seems to me that the world is going to have a lot more variation in protein and quality this year, which likely means that the spread for proteins will start to widen out from what we saw last year,” he said.
There is still an adequate supply of high protein wheat, so it is unlikely that those premiums will rise. But the anticipated glut of low protein wheat could lead to steeper discounts.
A lot will depend on how the spring wheat harvest unfolds in North America. If there is a lot of 12 and 13 percent wheat, there could well be a big premium for high protein wheat.
Peterson is anticipating a low protein crop south of the border. It has been too wet and cold in eastern North Dakota to produce good protein levels.
It has been dry in the western portion of the spring wheat region and hot in South Dakota, which could boost protein levels in those areas but not likely enough to offset the poor protein in the east.
Tyler Russell, Cargill’s national grain marketing manager, expects a hodgepodge of different grades and protein levels in Canada due to the lateness of this year’s crop.
“Statistics tell us that generally a crop harvested prior to Labour Day has more consistent, better quality,” he said.
Russell doubts harvest will be in full swing by the start of September, which means some of the crop will likely be damaged by rain, frost and other factors.
