Discounts assessed on this year's hard red spring wheat crop may slacken as external factors such as a low-protein Canadian crop and the shrinking value of the U.S. dollar come into play to help prop up prices, some industry experts say. There also are indicators that at least some high-protein wheat buyers will agree to accept the lower-protein wheat.
Not great, but lots of it
Spring wheat growers in the Northern Plains may see the highest yield on record, nearing 50 bushels, and North Dakota growers have brought in the largest crop in 13 years. But a large amount of it is testing at less than 14 percent protein, the desired level for most bread products and important to Japan and the Philippines, two of the largest foreign buyers of U.S. wheat.
Climatic conditions that led to the low-protein wheat in the U.S. also have affected the Canadian crop, where buyers normally would be looking for high-protein wheat after the U.S. crop, according to Erica Olson, marketing specialist at Fargo office of the North Dakota Wheat Commission.
"The Canadian crop is, from what we've been hearing and the data I've been seeing, very similar to our crop," she says. "They had higher, nearly record yields, like we did here."
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Also like the U.S., the Canadians brought in more than had been predicted.
"But along with that, they had the same growing conditions we did, so their protein is running lower than average as well," she says.
In Australia, another high-protein competitor, some of the early wheat is being harvested, but the majority won't come in until November and December.
"In some of those dry areas, there is still some concern," she says. "I know their production is forecasted higher than last year, but they still have a little bit of time."
Changing specs
Some of the United State's top customers, such as Japan, the Philippines and Taiwan, want to consistently buy 14 percent wheat. However, according to Olson, some of them recognize the situation and know that if they want 14 percent, they're going to have to pay a premium. Japan is one such buyer.
"They want 14, and that's what they are still requiring. They've kind of had to act a little bit fast now because they realize that, not only is our crop low protein, so is the Canadian crop," she says. "So they are going to have to vie to get whatever is out there."
Most foreign buyers understand the situation, she says, and will be checking their specifications and with their customers and bakers to see if they can adjust some of theirs.
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"Some of them are willing to change their specs so they can do with a 13.5 (percent) instead of a 14" percent, she says. "At this point, there is not another option. There is a very low supply of high-protein wheat around the world."
Domestic millers also are aware of the situation.
Market adjustments
The North Dakota Wheat Commission is nearing completion of its wheat harvest survey, which should finalize the picture for this year's hard red spring wheat crop. Historically, the wheat markets have responded to the survey results and some expect that, if it confirms the prevalence of low-protein wheat this year, the markets may slacken its $1-plus discounts.
"The good thing is that we are in constant contact with customers. Between ourselves and U.S. Wheat Associates, (our customers) have an understanding of what the quality is looking like," Olson says. "A lot of the domestic buyers are doing their own testing on some of their shipments, so they kind of have an idea already of what it's looking like and how it's performing."
Though the 2009 hard red spring wheat is lower in protein, Olson says it's still a good, strong wheat with good absorption.
"It's still very good quality," she says.
Unfortunately, in a year where bins are quickly filling to capacity, the best move for many farmers will be to hold onto the wheat and wait for prices to recover.
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"That's been a huge issue this year. Not only have prices come down substantially, but now we have these huge discounts being built in," she says.
For the producers who have high-protein wheat, the demand still is going to be there, and the premiums are strong. Olson expects them to hold their value or even increase. The discounts, however, are less predictable. Normally, they start to improve slightly after harvest time, but not this year.
"The fact is, with all the low protein that we have, it may take up until next year's crop for the market to straighten this out," she says.
She expects it may be well into the next growing season before analysts can get a good idea of what the crop will be looking like and before we see the markets adjusting.
She says, "It could take a while for some of this to even out just because there's not protein anywhere and this is some of the lowest protein, on average, that we've seen."
