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Published May 03, 2010, 03:05 PM

No easy answers on selling low-protein wheat

Farmers still holding 2009 low-protein wheat face a tough choice: Sell now despite big discounts? Wait a little longer in the hope that discounts will narrow?

By: Jonathan Knutson, Agweek

Farmers still holding 2009 low-protein wheat face a tough choice: Sell now despite big discounts? Wait a little longer in the hope that discounts will narrow?

The answer requires balancing when and how much the discounts might shrink against cash-flow needs and storage capacity, says Frayne Olson, crops marketing economist with the North Dakota State University Extension Service in Fargo.

“It’s a tough call,” he says.

But producers with unsold low-protein wheat shouldn’t expect the discounts to shrink much until this year’s crop is harvested, he says.

Discounts usually vary little during most of the year, generally rising or falling sharply only during harvest, according to his analysis of low-protein wheat delivered to Portland, Ore., from 2004 to April 9 of this year.

Historically, he says, “there’s not much softening in discounts until the next year’s harvest is in.”

Discounts on low-protein wheat have been a big issue since the 2009 harvest.

The region’s farmers generally had strong wheat yields last year, with North Dakota producers averaging a record 46 bushels of spring wheat per acre.

But the good yields often came at the expense of protein content. Much of the wheat harvested last year had protein content below the 14 percent level that buyers typically want, resulting in sizable discounts or price reductions.

At harvest, the discount was about $1 per bushel for each percentage point below 14

The current discount varies widely, from 60 cents to more than a dollar per bushel for each percentage point below 14, he says.

Waiting on wheat

Nobody knows for sure how much of the region’s 2009 spring wheat —much of it with low protein — is unsold.

North Dakota leads the nation in spring wheat production, followed by Minnesota, South Dakota and Montana.

Judging by wheat stocks, a big chunk of South Dakota’s 2009 crop hasn’t been sold yet, says Randy Englund, executive director of the South Dakota Wheat Commission.

Stocks don’t give a full picture because it’s unclear how much of the wheat has been sold but not yet delivered, he says.

By all accounts, however, a lot of the 2009 crop hasn’t been sold.

For instance, Paul Coppin, general manager of Reynolds (N.D.) United Co-op, estimates that about two-fifths of last year’s wheat crop is his area remains unsold.

What to do now?

There are no simple answers for producers who haven’t sold low-protein wheat, says Ed Usset, grain marketing specialist for the Center for Farm Financial Management at the University of Minnesota.

But he offers several suggestions:

- If you still have unsold high-protein wheat (wheat with protein content above 14 percent that commands a premium), sell it now.

- Don’t get so wrapped up in discounts that you lose track of the base wheat price. The base price could fall enough to more than offset any reduction in discounts.

- Sell low-protein wheat now if you’re paying storage costs on it.

“Don’t pay retail,” he says.

Olson says there’s reason to think discounts will narrow and holding unsold wheat until harvest can pay.

But producers need to evaluate their individual situations before making a decision, he says.

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