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How To Extract More Value From Feed Wheat

Last year’s difficult growing conditions in Western Canada have resulted in large quantities of wheat that have been downgraded to feed because of sprout damage, fusarium or frost. Whatever the reason, many grain producers are now faced with the sometimes difficult task of getting top value for their feed wheat.Grainews looked into some of the options available to Prairie farmers this crop year.

Mike Kelly is the office manager, supervisor and part-time grain buyer at Feed-Rite’s Winnipeg feed mill. He jokes that he does a little bit of everything, except actually make the feed.

His company, which has plants throughout Western Canada, is always looking for good quality feed grains, and advises farmers to take representative samples of their feed grain crops and have them tested.

KNOW YOUR BUSHEL WEIGHTS, DISEASE LEVELS

Minimum bushel weight is one of the attributes feed mills look for.

“We’re looking for 58 pounds per bushel in wheat,” Kelly says. “In barley, it’s a minimum of 47 and in oats, at least 38. It has to be that high in oats because otherwise we can’t roll them.”

Vomitoxin is another factor. Feed-Rite will take wheat with up to five parts per million (ppm), however, to be bought and sold as “clean” wheat or barley, the grain has to meet a much tighter standard.

“We test the vomi on delivery,” Kelly explains. “Anything that’s higher than 0.5 ppm ends up in the vomi bin.”

The premium for clean wheat is quite significant. In early November, 2010, at the Winnipeg mill, the price advantage was $37 per tonne or $1 per bushel. The reason is simple: supply and demand. Kelly says that it has

been difficult to source low-vomi wheat in eastern Manitoba.

“Before harvest started, we were having some success but since then it has been more of a challenge.”

One trait that makes no difference on the feed side is protein. Kelly says that Feed-Rite will pay the same for wheat whether it is 11.5 or 15.5 per cent protein.

Prices for feed wheat vary across Western Canada, according to Kelly, with the highest values being offered at the Winnipeg office. As an example, clean wheat on November 2nd would have fetched $190 per tonne with vomi wheat coming in at $153. Further west, prices for clean wheat are in the range of $160 per tonne or close to $4.40 per bushel. Prices for the barley reflect a similar east-west trend with clean barley going from $173 per tonne in Winnipeg to $155 in southern Alberta. Oats, on the other hand, increased in price as you went further west with values at Winnipeg around $225 per tonne compared to $240 at the Humboldt, Sask., mill.

Farmers looking at selling to a feed mill should ensure they have a representative sample, Kelly says, with a lab test that gives the bushel weight and the vomitoxin level. The mill will still test upon delivery but this will give them an idea of what farmers have on hand. If the specs are right, then it is a matter of making the deal and delivering a product that coincides with the sample that was provided. Kelly says that there is always a market for good quality feed grain and 2010-11 is no different.

WORLDWIDE DEMAND

There may be a silver lining for the many farmers whose crops were affected by the difficult conditions they faced in 2010, according to Gord Flaten, vice-president of sales and marketing for the Canadian Wheat Board (CWB).

“If there is a year to be selling feed grain,” Flaten says, “this is it.”

The reason, he explains, is that the competition in this particular market usually comes from eastern Europe, specifically Russia and Ukraine. Both those countries experienced devastating droughts in 2010 and have withdrawn from many of the markets that they normally serve. The CWB expects to sell what Flaten calls significant amounts of feed wheat. While it is too early to say for sure, it appears that parts of Australia may have quite a bit of feed wheat to sell because of poor harvest conditions. But in terms of the crop in the northern hemisphere, it is clear that there is quite a bit less feed grain around than usual.

Flaten says that the CWB has a fairly good handle on the amount of feed grain it will have to sell on farmers’ behalf.

“The Series A deadline of October 31 has passed,” he explains. “Producers are generally reluctant to commit a lot of feed wheat to Series A because they are still shopping around and trying to see if they can’t get a better grade somewhere else. But we already have a pretty good sense that the feed wheat program this year is going to be significant.”

While he avoids being specific in order to not tip his hand in the ongoing negotiations his sales team is having with clients throughout the world, he says it will be in the hundreds of thousands of tonnes.

At this time, Flaten expects that the CWB will be able to meet whatever quality requirements customers may have for feed grain from general farmer deliveries. Should the need arise for higher specs in terms of weight or vomitoxin levels, for example, the CWB always has the option of offering Guaranteed Delivery Contracts (GDCs) that it has used extensively in the past, in particular for origination of feed barley supplies. As their name implies, GDCs offer farmers greater certainty over when they can bring their grain into the system. Flaten also says the CWB has the ability to attach a premium to the contracts if what is needed does not appear to be readily coming into the grain delivery pipeline.

Grain delivered for sale as feed wheat through the CWB still has to meet the primary grade standards set by the Canadian Grain Commission (CGC). These are listed on the CGC website and include things like minimum test weight (65 kg/hl or about 52 pounds per bushel), less than 0.1 per cent ergot, less than 10 per cent foreign material and less than four per cent fusarium damage. There is no limit, however, on certain degrading factors such as sprouting.

The CWB price for feed wheat has followed milling wheat upwards in the past few months. As of the last monthly Pool Return Outlook (PRO), it was about $175 per tonne in various Prairie locations or about $4.75 per bushel. This is the price backed off for freight and elevation. The initial, of course, is substantially less at roughly 60 or 65 cents per bushel ($23.60 per tonne for a Manitoba location), with the rest to come in adjustment, interim and final payments over the course of the next twelve months. If the price of feed grains continues to climb, the pooled price offers the advantage of giving producers the chance to benefit from some of those gains.

If, on the other hand, the farmer wants all their money up front or expects the price to drop for whatever reason, then the CWB’s Fixed Price Contract (FPC) or Early Payment Options may be better alternatives. The FPC price is set at a discount to the reference grade, which in the case of Canada Western Red Spring (CWRS) wheat is No. 1, 13.5 per cent protein. As of early November, that spread is $20.20 per tonne.

The price the farmer gets for feed grain upon settlement (that is, the day the elevator actually cuts them a cheque) is the initial price for feed ($23.60 per tonne in Manitoba, as per the information above) plus the difference between the fixed price for the reference grade ($324.23 for No. 1 CWRS 13.5 per cent protein on November 4th) and the initial for the reference grade ($134.20) minus the spread in effect on that day ($20.20 on November 4th again). This translates into price of $193.41 per tonne or about $5.25 per bushel for a Manitoba location as of the first week of November.

This can change, depending on developments in the futures markets and the spreads between the initials for the reference grade and feed wheat. With a difference of almost $200 between the initial price and the PRO for No. 1 CWRS 13.5 per cent protein, a CWB adjustment payment — which would change all of these values — may well be in the offing. But the FPC for feed wheat is probably something worth watching in the coming weeks and months.

ETHANOL

Alongside the domestic feed and export markets, producers also have the option of selling their feed wheat into the domestic ethanol industry. Husky Energy has two ethanol plants, one in Minnedosa, Man., and the other in Lethbridge, Alta. Both are designed to take about 350,000 tonnes of what the Husky webite calls “non food-grade wheat varieties.”

It goes on to say that “(f)eedstock for Husky’s ethanol facilities include Canadian Western Soft, Canadian Prairie Spring Red, Canadian Prairie Spring White and Red Winter wheat. These feed-grade wheat varieties contain more ethanol-producing starch than higher quality milling wheat.”

Husky is looking for wheat that weighs at least 58 pounds per bushel. In addition, it must have less than 1.0 ppm vomitoxin, no mould, and must be less than 15 per cent moisture. When contacted in early November, Husky officials did not want to provide a price for feed wheat but stated that “prices would be competitive” with other marketing alternatives. They asked farmers to contact the individual plants if they had feed wheat for sale.

RhéalCeneriniwritesfromLaSalle,Man.

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There is always a market for good quality feed grain and 2010-11 is no different

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