By Stephanie Bryant-Erdmann, USW Market Analyst

In the Nov. 2, 2017, issue of “Wheat Letter,” we analyzed the tight supply of high protein U.S. wheat (minimum of 13.0 percent protein at 12 percent moisture basis (mb)) and its effects on pricing. The latest production and quality analysis suggests that global high protein wheat production in marketing year 2017/18 is down as much as 39 percent from average. That strengthens the conclusion that price premiums will continue at least into the first quarter of marketing year 2018/19 (June to May).

Based on available data, U.S. Wheat Associates (USW) has estimated that the world’s wheat suppliers produce about 50 million metric tons (MMT) of high protein wheat in an “average” year. Of that total, USW estimated that about 27 MMT on average are available to export markets, including:

  • 0 MMT of hard red spring (HRS) from the United States;
  • 0 MMT of Canadian Western Red Spring (CWRS);
  • 0 MMT from Kazakhstan, Russia and Ukraine; and
  • 0 MMT of Australian Prime Hard (APH) and Australian Hard (AH).

Looking at 2017/18, high protein wheat production was well below average.

USDA data showed that total U.S. HRS production was down 26 percent year over year at 10.5 MMT, with about 9.0 MMT having at least 13.0 percent protein (12 percent mb). Roughly half of U.S. HRS is exported annually, putting U.S. high protein HRS exports at 4.5 MMT. Carry-in stocks from 2016/17 totaling 6.4 MMT push total HRS supply higher, and potentially also enlarge the supply of high protein HRS. In 2016/17, the average protein was 14.6 percent (12 percent mb), but the protein content of the remaining stocks carried into 2017/18 is unknown. Year to date, the Federal Grain Inspection Service has inspected 3.94 MMT of HRS, 98 percent of which had at least 13.0 percent protein (12 percent mb), and USDA reported an additional 1.26 MMT of HRS sales that have not yet shipped as of Jan. 25. To meet that demand, high protein HRS stocks will need to be pulled out of storage, indicating premiums for HRS are unlikely to shrink in 2017/18.

Of the 19.2 MMT of CWRS produced in 2017/18, about 78 percent, or 15.0 MMT, graded #1 CWRS according to Canadian International Grains Institute (CIGI) data. The average protein for #1 CWRS is 13 percent (12 percent mb), with roughly 75 percent of #1 CWRS samples averaging above 13.0 percent (12 percent mb). If production values match sampling ratios, then Canada produced roughly 11.0 MMT of high protein wheat in 2017/18. On average, Canada exports roughly 70 percent of total wheat production putting total high protein wheat exports at an estimated 8.0 MMT. Weber Commodities, a Canadian-based analyst firm, believes Canada carried in just 1.0 MMT of high protein stocks, putting the estimated total Canadian high protein wheat exportable supply at 9.0 MMT.

Black Sea high protein exports are expected to fall to 3.0 MMT — all from Kazakhstan — due to above average rainfall that significantly lowered protein levels in Russian and Ukrainian wheat.

Australian Prime Hard is only produced in Queensland and New South Wales where La Niña-related drought conditions have sharply cut yields. Generally dry conditions are also expected to hurt Australian Hard wheat yields. USW estimates that Aussie high protein exportable supplies will only reach about 1.5 MMT.

The shrinking supply of high protein wheat can be seen in the prices of the top suppliers. According to the International Grains Council (IGC), the average price for 13.5 percent protein (12 percent mb) HRS exported from the Pacific Northwest (PNW) is up 16 percent year over year. IGC uses the Canadian designation of CWRS as 13.5 percent protein (13.5 percent mb). It reports CWRS prices from both Vancouver and St. Lawrence show an increase of 24 percent year over year. Meanwhile, lower protein wheat producers, such as Argentina, have seen prices fall 4 percent year over year due to the large supply of lower protein wheat.

Here is a table summarizing USW’s estimate of the big cut in global high protein wheat supplies in 2017/18 compared to an average, or “typical” year.

                                    Average Export Supply            2017/18 Estimated Supply

U.S. HRS                        6.0 MMT                                   4.5 MMT

CWRS                          11.0 MMT                                    8.0 MMT

Black Sea                       7.0 MMT                                   3.0 MMT

APH/AH                          3.0 MMT                                   1.5 MMT

Total                            27.0 MMT                                  17.0 MMT


By Stephanie Bryant-Erdmann, USW Market Analyst

Six months into marketing year 2017/18 (June to May), total U.S. export sales of 19.5 million metric tons (MMT) are 8 percent behind last year’s pace according to USDA Export Sales data through Jan. 4. However, the estimated total value of U.S. wheat export sales is 4 percent greater than last year on the same date at $4.72 billion, due to slightly higher export prices according to USDA Export Sales data and USW Price Report data.

A deeper analysis of USDA data shows total sales to six of the top 10 U.S. export markets in 2016/17 are ahead of last year’s pace, demonstrating strong demand for U.S. wheat. Sales of soft red winter (SRW) and soft white (SW) are both ahead of last year’s pace. USDA projects total 2017/18 exports will fall slightly to 26.5 MMT, which, if realized, would be 8 percent below 2016/17 but 1 percent above the 5-year average pace.

USDA reported hard red winter (HRW) year-to-date exports at 7.79 MMT, down 10 percent from the prior year. Still, 2017/18 export sales are 10 percent ahead of the 5-year average due to competitive prices for medium protein HRW and the good, overall quality of this year’s crop. The estimated value of year-to-date HRW export sales is 6 percent above 2016/17 due to a 14 percent increase in the average U.S. HRW free-on-board (FOB) price that is supported by the increased premiums for HRW with higher protein. Mexico is currently the number one HRW purchaser. As of Jan. 4, HRW sales to Mexico totaled 1.58 MMT, up 28 percent from last year’s pace. Sales to Indonesia are also up 28 percent year over year at 430,000 metric tons (MT). HRW purchases by Algeria total 456,000 MT, more than double last year’s sales on this date. To date, HRW sales to Venezuela totaling 120,000 MT are nearly four times great than the 2016/17 pace.

Both export sales volume and value of SRW for 2017/18 are up due to the excellent quality of this year’s crop and relatively competitive pricing. Export sales are up 7 percent year over year at 2.02 MMT, boosting estimated export sales value to $400 million, or 12 percent more so far this year. As of Jan. 4, total sales to 11 of the top 20 U.S. SRW export markets from 2016/17 are higher than last year. Sales to Colombia are 12 percent ahead of 2016/17 at 198,000 MT. Nigerian SRW purchases total 234,000 MT, up 12 percent from last year. Sales to other Central and South American countries, including Brazil, Peru, Panama, Venezuela and El Salvador, are also ahead of the 2016/17 pace.

Hard red spring (HRS) sales of 5.15 MMT are down 25 percent year over year and 7 percent below the 5-year average. Higher prices due to smaller 2017/18 production have slowed HRS exports thus far in 2017/18, but global demand for HRS is strong. Year-to-date in 2017/18, the average FOB price of HRS is $293 per metric ton ($7.97 per bushel), compared to $241 per metric ton ($6.55/bu) in 2016/17, according to USW Price Report data. As of Jan. 4, buyers in Japan purchased 878,000 MT, up 20 percent from 2016/17. Sales to Taiwan of 518,000 MT are up 17 percent from last year’s sales on the same date. The Philippines continues to import the largest volume of HRS, though at a 6 percent slower pace so far.

As of Jan. 4, exports of soft white (SW) wheat are up 22 percent year over year at 4.30 MMT. That is 28 percent greater than the 5-year average. Sales to the top 10 SW customers are ahead of last year’s pace, supporting an estimated export value of $896 million, up 25 percent from the prior year. Philippine millers purchased 946,000 MT, up 16 percent compared to last year’s sales on the same date. South Korean sales are up 43 percent at 674,000 MT. U.S. SW sales to China, Thailand and Indonesia are also up. Year-to-date, Indonesia has purchased 515,000 MT, compared to total 2016/17 purchases of 270,000 MT. Thailand sales are up 18 percent year over year at 217,000 MT. Chinese purchases of 306,000 MT are already greater than 2016/17 total SW sales.

Year to date durum exports total 272,000 MT, down 32 percent from the same time last year, and below the 5-year average, with tighter supplies and resulting higher prices. The average export price for U.S. durum is up 5 percent over last year at this time according to USW Price Report data. To date, Nigeria, the European Union (EU), Algeria and Guatemala are the top durum buyers. A significant portion of the first quarter 2017/18 sales is designated as “sales to unknown designations.


Last week in the United States, the potential effects of severe cold over most of the U.S. hard red winter (HRW) and soft red winter (SRW) crops got the lion’s share of attention in media covering wheat production and markets.

To be sure, bitterly cold temperatures across the United States may have hurt some wheat in parts of the Plains, southern Midwest and Southeast without snow cover. A senior agricultural meteorologist was quoted saying “damage occurred in about a quarter of the hard red winter wheat belt in the Central Plains, with about 5 percent of the soft red wheat belt in the Midwest seeing impacts.”

Agronomists with Kansas State University confirmed that winter kill may be an issue in north central Kansas, where soil temperatures were sustained at potentially damaging levels for the longest time.

“It is difficult to truly assess the extent of the damage at this point,” they reported. “Provided that the crown is not damaged, the wheat will recover from this foliar damage in the spring with possibly little yield loss.”

Winter kill potential and the logistical problems with such cold did spark a brief uptick in KCBT and CBOT futures prices last week. Yet of all the threats to wheat, winter kill is not making the top of the list for farmers. What is keeping more of them up at night now is the lack of moisture.

“I think if we lose wheat, it will be from dry conditions rather than winter kill,” said Don Schieber, a Ponca City wheat farmer and a past chairman of U.S. Wheat Associates (USW). “Some of the wheat that was planted early is big, but some is hurting and turning blue. It is so dry that some farmers have stopped grazing their fields because the cattle are pulling whole wheat plants out of the ground.”

The National Agricultural Statistics Service indicates that drought conditions in Oklahoma, the Texas Panhandle and much of southwestern and central Kansas are very dry, noting that for the month of December 2017, topsoil moisture in Kansas was rated 28 percent very short, 49 short, 23 adequate, with no surplus in the state. In northeastern Colorado, dry conditions increased concerns that cold snaps without the benefit of snow cover may have hurt fall-seeded HRW wheat.

Wheat is a hearty crop and Kansas State agronomists made the point that we will only be able to assess the true extent of any damage at spring green-up. But this continues to be a challenging season for HRW in the Plains.

On Jan. 9, Kansas Wheat Marketing Director Aaron Harries shared photos of a field of stunted wheat in south-central Kansas on Twitter that, he suggested, was “one of the better-looking fields in the area.” It was 65° F when he took the photo and wrote that “48 hours from now: 50 mph north wind and single digit temps with no snow cover – #sad, #drought, #prayforrain, @KansasWheat.


By Stephanie Bryant-Erdmann, USW Market Analyst

With the Northern Hemisphere 2017/18 wheat crop now safely in the bin, all eyes are now watching Southern Hemisphere harvest progress and the condition of the Northern Hemisphere’s winter wheat. Here are brief summaries of current harvest progress and winter wheat crop conditions around the world.

Southern Hemisphere Harvest.

Argentina. On Dec. 7, Bolsa de Cereales, the Buenos Aires Grain Exchange, reported Argentine wheat harvest is 45 percent complete, up from 31 percent complete last week and significantly ahead of last year’s pace. To date, Argentinian farmers have harvested 6.10 MMT with an average yield of 2.56 metric tons (MT) per hectare (38.1 bu/acre). Bolsa forecasts total Argentine wheat production at 17.0 MMT. If realized, that would be 8 percent below 2016/17, but 34 percent above the 5-year average.

Australia. According to Grain Central, an Australian farm publication, harvest has resumed after heavy rains fell last week on mature wheat, damaging yield potential and quality. The Australia Bureau of Agricultural and Resource Economics and Sciences (ABARES) forecast 2017/18 Australian wheat production to fall 20.3 MMT. If realized, that would be 20 percent below the 5-year average.

Northern Hemisphere Winter Wheat Planted Area and Conditions.

European Union. Strategie Grains forecast 2018/19 European Union (EU) planted winter wheat area at 23.3 million hectares (57.5 million acres), down slightly from 2017/18 due to reduced planted area in the Baltic States. Dry conditions in Spain, which hindered wheat emergence this fall were also noted. On Dec. 13, FranceAgriMer rated 95 percent of French winter wheat in good to excellent condition in its last crop condition report for 2017.

Russia. Russian farmers planted winter grains on 17.1 million hectares (42.2 million acres) for 2018/19, down 1 percent from the prior year according to the Russian Ministry of Agriculture. In recent years, winter wheat accounted for an estimated 87 percent of winter grain planted area. Reuters reports that additional snow is needed to protect the crops and replenish soil moisture after a dry autumn.

Ukraine. UkrAgroConsult reported winter wheat planted area for 2018/19 at 5.9 million hectares (14.6 million acres), down 3 percent from 2017/18 due to unfavorable planting conditions. Forty-seven percent of winter grains were rated in good condition, up from 38 percent in 2016. The share of winter grains rated as satisfactory is 36 percent, compared to 45 percent last year.


By Stephanie Bryant-Erdmann, USW Market Analyst

As the Dec. 12 World Agricultural Supply and Demand Estimate (WASDE) confirms, global wheat supplies are at a record high this year. USDA increased its estimate for 2017/18 global wheat production to 755 million metric tons (MMT), up slightly from 2016/17 and a new record high. If realized, it would be the fifth consecutive year of increased global wheat production.

The record large global wheat production has pressured U.S. wheat futures to six and twelve-month lows. Since the beginning of the 2017/18 marketing year, the Chicago Board of Trade (CBOT) soft red winter (SRW) wheat futures and the Kansas City Board of Trade (KCBT) hard red winter (HRW) wheat futures have fallen 37 cents and 32 cents, respectively to levels not seen since last December. The Minneapolis Grain Exchange (MGEX) hard red spring (HRS) wheat futures climbed in July, supported by concerns over severe drought in the U.S. Northern Plains, but has since fallen to within 14 cents of the June 2 price. This decline in wheat futures prices represents a significant opportunity for customers to lock in low futures values to hedge the risk of growing protein premiums due to the tight global supply of high protein wheat.

The USDA report also noted that lower year over year wheat production for 2017/18 was reported in Canada, Kazakhstan, Ukraine and the United States, and is also expected in Australia. This is important for customers needing high protein wheat, because nearly all the world’s high protein wheat exports (13 percent protein on a 12 percent moisture basis (mb) or higher) originate from those five countries plus Russia.

While Russian wheat yields exceeded expectations and boosted total production, high protein wheat supplies are very limited according to the Federal Centre of Grain Quality and Safety Assurance for Grain and Grain Products (Centre) preliminary data for winter wheat. According to Centre data, 25 percent of samples graded as Russian 3rd class wheat (10.5 to 11.9 percent protein on a 12 percent mb); 44 percent of the samples graded as Russian 4th class wheat (8.8 to 10.5 percent protein on a 12 percent mb); and 31 percent as 5th class wheat (feed wheat). Less than 1 percent of samples graded as Russian 2nd class wheat (11.9 to 12.8 percent protein on a 12 percent mb).

With global high protein wheat supplies shrinking for the second consecutive year and demand continuing to be strong, the premium between MGEX and KCBT wheat futures has continued to widen. In 2016/17, the inter-market spread between MGEX and KCBT averaged $1.05 compared to just 40 cents the prior marketing year. Year to date in 2017/18, the MGEX to KCBT spread averages $2.09.

The demand for higher protein wheat also supports HRW protein export basis spreads, which have widened significantly this year at both Gulf and Pacific Northwest (PNW) ports. Over the past 15 years, the average premium for 12 percent protein (12 percent mb) at the Gulf has been 14 cents per bushel. This year that premium is $1.96 per bushel. The 15-year average premium for 12 percent protein HRW at the PNW is $1.09 per bushel. Since the beginning of the 2016/17 marketing year on June 1, that average premium is $1.94 per bushel.

Despite the increased premiums for high protein HRW and HRS, a review of USDA Federal Grain Inspection Service (FGIS) data reveals an increased percentage of high protein exports. Seventy-seven percent of 2017/18 HRS exports have at least 14 percent protein (12 percent mb), compared to the 5-year average of 70 percent. The percentage of HRW exports of 13 percent protein and above (12 percent mb) is double the 5-year average.

With six months left in the marketing year, many customers are securing their high protein wheat demands for the year. While premiums for high protein continue to grow, U.S. wheat futures markets have fallen for four straight weeks, which offers a good opportunity for customers to lock in the lowest HRS futures prices seen since June and the lowest SRW and HRW futures prices since last December.

Please call your local U.S. Wheat Associates (USW) representative if you have any questions about the U.S. wheat marketing system or U.S. wheat supply.


By Amanda J. Spoo, USW Assistant Director of Communications

Each year, after thousands of wheat crop samples are analyzed and the results are published in the USW Crop Quality Report, USW invites its overseas customers, including buyers, millers and processors, to seminars led by USW staff, U.S. wheat farmers, state wheat commission staff and educational partner organizations. The seminars dive into grade factors, protein levels, flour extraction rates, dough stability, baking loaf volume, noodle color and texture and more for all six U.S. wheat classes, and are tailored to focus on the needs and trends in each regional market.

In 2017, USW hosted 33 seminars in 25 countries, and many reported seeing record participation. Customers share that they use the report throughout the year as a reference manual and to guide them through purchases and future planning. The seminars provide a first look at the overall crop and a deep dive into the data and how to use it.

“The crop quality booklet is very useful for us as millers for reference and information on wheat quality available for production,” said one participant from Indonesia.

“If we encounter quality issues in our products, we use the wheat quality data to help us make necessary adjustments,” said participants from the Philippines.

Customers will often use the seminars and report as educational training for new employees.

The reports and seminars have been a traditional part of USW’s strategy since 1959, growing to become its single largest marketing activity.


From USDA and Media Reports

Hours of work will come to fruition this week for market analysts at USDA and the farmers and buyers they serve. The results of some new reports provide an early look at the next U.S. winter wheat crop, which includes hard red winter (HRW), soft red winter (SRW) and fall-planted soft white (SW) classes.

Starting with a brief look back, we do know that U.S. farmers harvested the smallest area of wheat in 2017 since detailed records started in 1919. That was not a surprise because USDA had estimated planted area for all wheat classes, including spring wheat, for 2017/18 at a similar record low. Winter wheat planted area was down 9 percent from 2016/17.

New estimates suggest the base will be even lower for 2018/19. Reuters reported Nov. 28 that USDA estimates U.S. farmers are likely to expand corn and soybean plantings while reducing wheat seedings to 45.0 million acres for 2018/19, down from the record low of 46.0 million for 2017/18. Reuters noted that the forecasts are developed by consensus within the USDA on a long-term scenario for the agricultural sector for the next decade. USDA will release its complete report on projections for the next 10 years in February.

Arlan Suderman, chief commodities economist for INTL FCStone, expects U.S. wheat farmers will continue plant less wheat because of the price pressure from the record global wheat stocks. He estimates seeded area will be down another 4 percent to 6 percent in 2018. Suderman said the strong U.S. dollar pressures demand for U.S. wheat while encouraging wheat expansion overseas, such as in the Black Sea region. He believes markets that value high quality wheat and strong protein offer stronger opportunity for U.S. wheat.

As a counterpoint, a poll by a national agricultural publication fielded last July suggests farmers may slightly increase wheat seedings. The Farm Futures magazine survey found growers wanting to boost wheat seedings by 2.5 million acres to 48.1 million, a 5.4 percent increase over 2017. The survey suggested that winter wheat would make up nearly 90 percent of that increase.

The first official estimate of winter wheat planted area from USDA will be released in its Prospective Plantings report in March 2018.

USDA’s latest conditions report released on Nov. 26 suggests the new HRW wheat crop seeded in the Central and Southern Plains is stressed by dry weather. Oklahoma farm broadcaster Ron Hays reported that “winter wheat crop ratings continue to slide as Oklahoma, Kansas and Texas wheat conditions all fell in the latest reporting week. Oklahoma has seen its good to excellent score on the 2018 wheat crop drop from 41 percent two weeks ago to 30 percent this week; Kansas dropped five points from two weeks ago to 51 percent good to excellent and Texas dropped ten percentage points to 36 percent good with no score for excellent in this week’s final weekly score of the season.”

On Nov. 30, USDA will issue a quarterly update to its forecast of U.S. farm exports for fiscal year 2018 (Oct. 2017 to Sept. 2018). In a previous report, USDA said the total of $140.5 billion for FY2017 ended a two-year decline and was the third-highest on record. USDA currently forecasts U.S. wheat exports for marketing year 2017/18 at 27.2 million metric tons (MMT), down slightly from 28.7 MMT in 2016/17.


Participants at the U.S. Agricultural Export Development Council annual meeting, Nov. 14 and 15, 2017, in Baltimore, Md., got an early look at a new study indicating that developing countries have been competing quite effectively in global agricultural trade. In addition, the study showed that agricultural products are often classified as “sensitive products” in trade agreements, leading to a significant level of protection, especially by developing and advanced developing countries.

The report is “The Global Landscape of Agricultural Trade, 1995-2014,” just released by USDA’s Economic Research Service. The authors’ summary says the Uruguay Round Agreement on Agriculture (URAA) of 1994 imposed new disciplines on market access barriers, domestic support and export subsidies, and set up rules for non-tariff measures. In the two decades since the URAA, government interventions in agricultural trade have evolved, agricultural trade has expanded and BRIIC countries (Brazil, Russia, India, Indonesia, and China) and other emerging economies have become significant agricultural traders. The summary adds that although clear progress has been made in such areas as tariff reductions and elimination of export subsidies, there is room for further disciplines on tariffs, nontariff measures and domestic policy.

Specifically, the study showed that the value of global agricultural exports adjusted for inflation has doubled since 1994, indicating a significant increase in the total market size. Overall, as the BRIIC country share of total imports is increasing, North American and Western European countries are importing a smaller percentage of the total. Conversely, the total share of world agricultural exports from the United States is down from 20 percent to 14 percent, while BRIIC country share is up from 14 percent to 23 percent. Global wheat trade has displayed a similar pattern: as U.S. exports have remain fairly stable, the U.S. share of a growing total world wheat market has declined.

The report summary adds that major emerging economies have increased the support they provide to farmers, sometimes using methods like price supports or input subsidies that are more likely to distort trade. In some of these countries, the study showed, recent emphasis on agriculture support is a sharp departure from earlier policies that implicitly taxed agriculture. Read the entire report online here.


By Steve Mercer, USW Vice President of Communications

USDA market analysts cited Iraq’s major purchase of hard red winter (HRW) wheat as the specific basis for a significant drop in U.S. ending stocks in the November World Agricultural Supply and Demand Estimates (WASDE) report. The report correspondingly put its total U.S. export forecast for 2017/18 up 0.7 million metric tons (MMT) to reach 27.2 MMT. This would be down 5 percent from 2016/17 but 2 percent above the 5-year average, if realized.

The ending stocks forecast continues to be the primary plot of the 2017/18 global wheat market story. The WASDE report noted that even with slightly lower supplies and higher use, ending stocks are still expected to hit a record level.

USW Market Analyst Stephanie Bryant-Erdmann, who is currently on an international assignment, shows in USW’s latest Supply and Demand Report that global ending stocks are projected to reach a record level: 268 MMT, or 5 percent higher than 2016/17, if realized. Estimated Chinese ending stocks of 127 MMT account for 48 percent of global ending stocks, which is 58 percent greater than the 5-year average.

Bryant-Erdmann provides a more nuanced analysis of global stocks by charting the current global stocks-to-use ratio with and without China’s stocks, which are not likely to move to export. She shows that the 2017/18 ratio drops about 64 percent from 36 percent to 22 percent without Chinese stocks. More significant, though, is the historical look, showing that exportable stocks are on a three-year downward trend. In fact, Bryant-Erdmann shows that exporter ending stocks are expected to fall 5 percent year over year to 74.3 MMT, and ending stocks in importing countries are forecast to fall to 66.0 MMT, 5 percent below the 5-year average of 70.5 MMT.


By Stephanie Bryant-Erdmann, USW Market Analyst

The common refrain right now is “the world is awash with wheat.” While that is true in the aggregate, in terms of milling wheat and, more specifically, high-protein milling wheat, supply is very tight. The impact of the small supply of high-protein milling wheat can be seen in the protein premiums for both U.S. hard red spring (HRS) and hard red winter (HRW) wheat. The following is a breakdown of pricing and availability of the U.S. high-protein wheat supply by class and port of export. Please note that U.S. wheat protein is expressed on a 12 percent moisture basis, not on a dry matter basis, thus U.S. 11.5 percent protein is equal to 13.1 percent protein on a dry matter basis.

Hard Red Winter

According to USDA, HRW production fell 32 percent from 2016/17 to 20.4 million metric tons (MMT), putting total HRW supply at 36.5 MMT. According to USW Crop Quality data, the average protein of this year’s HRW crop is 11.4 percent. That is similar to last year, but below the 5-year average. Overall, 55 percent of HRW samples were less than 11.5 percent protein; 26 percent had 11.5 to 12.5 percent protein and 19 percent had protein levels above 12.5 percent. Extrapolating that to HRW production, there is roughly:

  • 9 MMT of HRW with protein greater than 12.5 percent;
  • 3 MMT with protein between 11.5 and 12.5 percent; and
  • 2 MMT with less than 11.5 percent protein available.

The smaller crop and lower protein support both the Kansas City Board of Trade HRW futures market and protein premiums; however, that support varies by export tributary.

Gulf. The 2017/18 marketing year (beginning June 1) average protein premium for Gulf HRW 12.0 percent protein on a 12 percent moisture basis (mb) is 51 percent above the 2016/17 marketing average at $69 per metric ton (MT) and $20 dollars per MT above the 5-year average. The HRW Gulf export tributary region experienced its second consecutive year of higher yields and very limited heat stress during the growing season, resulting in lower than normal protein. According to USW Crop Quality data, the average protein for Gulf export tributary HRW is 11.2 percent, compared to the 5-year average of 12.8 percent protein. This means that while protein premiums for high-protein HRW are climbing, ordinary HRW from the Gulf represents a significant bargain for customers with export basis levels 31 percent below the 5-year average at $28/MT.

Pacific Northwest (PNW). Unlike the Gulf export tributary states, HRW in the PNW tributary states was stressed by high temperatures and little rainfall in 2017/18, boosting protein content but cutting yields. According to USW Crop Quality data, the average protein for PNW export tributary HRW is 12.0 percent, similar to the five-year average but higher than the average of 11.7 percent protein in 2016/17. USDA estimates the PNW HRW tributary states sampled by USW produced 3.5 MMT, or just 17 percent of the total U.S. HRW supply. With the PNW supply limited, albeit a supply with higher protein than the Gulf, the average price for 12.0 percent protein HRW is 9 percent higher than the 2016/17 value at $238/MT, but still well below the 5-year average of $277/MT. This represents an excellent opportunity for customers to lock in prices before supplies dwindle in the second half of the marketing year.

Hard Red Spring

According to USDA, HRS production fell 22 percent to 10.5 MMT in 2017/18. Total HRS supply declined 18 percent from 2016/17 to 20.8 MMT on smaller production and beginning stocks. According to USW Crop Quality data, the average protein of this year’s HRS crop is 14.6 percent. That is above both last year and the 5-year average of 14.0 percent. Overall, 22 percent of HRS samples tested had less than 13.5 percent protein; 23 percent of samples had 13.5 to 14.5 percent protein and 55 percent of samples had greater than 14.5 percent protein. If that is extrapolated out to HRS production, then roughly:

  • 8 MMT of HRS was produced with protein greater than 14.5 percent;
  • 4 MMT having protein between 13.5 and 14.5 percent; and
  • 3 MMT with less than 11.5 percent protein available.

This distribution caused protein premiums for HRS to fall below the 5-year average, but supported HRS MGEX futures, which spiked in July and remain an average $49/MT above last year’s futures prices due to the smaller supply. Like HRW, price impacts of the smaller supply vary by export tributary region but were more evenly distributed due to a nearly even production split between regions.

Eastern Region. The average cash price for Gulf HRS 14.0 percent protein is 16 percent above the 2016/17 marketing average at $298/MT. The higher price is supported by the extreme drought across the U.S. Northern Plains which cut production but boosted protein content. USW Crop Quality data showed the average protein for Gulf export tributary HRS was 14.4 percent, compared to the 5-year average of 14.0 percent protein.

Western Region. The drought had devastating effects on yields in the Western Region, specifically in Montana and western North Dakota and South Dakota, but did boost protein levels. According to USW Crop Quality data, the average protein for the PNW export tributary is 14.9 percent, compared to the 5-year average of 14.2 percent protein. With the increased availability of high-protein HRS, the average protein premium for 14.0 protein HRS fell 10 percent year over year to $53/MT, well below the 5-year average of $67/MT.

With Canadian wheat production falling an estimated 5.5 MMT year over year and the sharp drop in U.S. high-protein wheat production, the global supply of high-protein wheat has tightened. Depending on what protein specifications customers need, this may be the best time to lock in lower HRS protein premiums. Low-protein HRW also represents an excellent buying opportunity for specific customers.