Chicago | Reuters — Cash prices for top quality U.S. hard red spring wheat are soaring as the rain-delayed harvest throws up lower-than-average protein levels, and traders and analysts said outsized premiums are likely to continue for months.
Farmers are expecting the largest harvest in four years as wet, cool weather swells yields. But that has hit protein levels for some of the crop, forcing millers and exporters to chase supplies of higher protein product to ensure quality.
In samples from the first 43 per cent of the harvest tested by North Dakota State University, the average protein content was 13.6 per cent, matching the 2013 average, but below the five-year average of near 14 per cent. One Minneapolis trader said he expected a final average approaching 13.2 per cent.
“Spot market bids are pretty aggressive. It’s got to be that (millers) are trying to get their hands around it,” said Carrol Duerr, general manager of the Colfax Farmers Elevator at Colfax, N.D.
Some millers and exporters are looking to the 2013 crop for supplies of higher-protein wheat as the lower content of the 2014 harvest became evident. Many exporters likely committed ahead of harvest and now have to find adequate quality supplies.
Cash market premiums for spring wheat with 15 per cent protein — higher than the standard grade of 14 per cent — have surged to more than $6 a bushel, or roughly double the price of December spring wheat futures on the Minneapolis Grain Exchange, which settled Friday at $5.78 a bushel (all figures US$).
The premium has risen from $5 a bushel two weeks ago and soared from $2.50 a month ago.
The premiums should remain elevated for months, possibly until the 2015 spring wheat harvest, as the crop in Canada, where harvest has been stalled by rain, is also expected to have high yields and low protein.
Farmers have been holding out for high cash prices, exacerbating the tightness of supplies.
“We will see multitiered premium/discount scales, as we normally do, but maybe more robust than normal,” said Shawn McCambridge, analyst with Jefferies Bache in Chicago.
The premiums should cool slightly from current sky-high levels, however, as end users find ways to adjust their milling blends and make do with cheaper, lower-grade wheat.
“No one is going to pay $12 for wheat for very long. Believe me, they will figure out some other mill mix,” the Minneapolis trader said.
Only 42 per cent of the harvest was completed by Sept. 7 in North Dakota, by far the largest producer of hard red spring wheat, behind the five-year average of 74 per cent as rain has made the crop too wet to bring in.
Farmers had earlier faced discounts for wheat with head scab, which infected some of the earliest-planted fields. Scab was also a problem with the Midwest harvest of soft red winter wheat.
The disease produces high levels of vomitoxin, which the U.S. government says must not reach more than one part per million (ppm) in finished foods such as bread. Most flour mills and exporters will not accept wheat with a vomitoxin content of more than two ppm.
Brent Schilling, manager of CHS South Central elevator in Wishek, N.D., said his facility was testing every incoming load of wheat for vomitoxin and other issues.
“That (testing) is not normal, but it has been an abnormal year,” Schilling said, referring to a mild summer capped by heavy August rains.
“The grower is not real happy,” said Colfax’s Duerr. “The prices are down on everything, and they have other (quality) issues falling on top of them.”
— Julie Ingwersen is a Reuters correspondent reporting on grain markets for Reuters from Chicago.