Grain futures plunge, but wheat premium holds firm

(Agrimoney) – Wheat buyers were cautioned over the high premium they will need to pay for high protein supplies, even as underlying grain prices tumbled to fresh four-year lows, pressed by talk of ever-higher supplies.

US Wheat Associates, which two weeks ago warned of the potential for lower-than-average protein levels in the US spring wheat crop, said that concerns were being reflected in the relative prices of higher quality grain.

“There is higher protein wheat available, but it is selling at a premium,” said the group, responsible for promoting US exports of the grain.

Quoting data from the North Dakota Wheat Commission, which said that “there is no doubt the market is trying to accumulate protein right now”, the US Wheat Associates said that the premium of 15% protein wheat over 13% protein supplies had hit $3 a bushel, equivalent to about $110 a tonne.

“Traditional customers who demand a 13.5-15% protein hard red spring wheat, or higher, will likely face market premiums throughout most of the 2014-15 market year as supplies of high-protein wheat on the market grow smaller,” the group added.

Freight vs grain

Typically, the premium is more like $1-1.50 a bushel, said Brian Henry at Benson Quinn Commodities, based in Minneapolis, within the US spring wheat belt.

Disappointing quality in European Union and Ukraine harvests, and some concerns over protein levels in Russia’s huge crop, have also constrained choice for buyers of quality wheat.

And elevated US freight rates are also boosting domestic prices, with buyers being forced to pay up for access to US spring wheat largely grown in the northern interior of the country.

“Rail freight can cost you $6,000 a car,” equivalent to more than $1.60 a bushel, Mr Henry told Agrimoney.com.

For lower quality wheat, whose prices extended their declines on Friday, “that could be half the price [of supplies] by the middle of next week, the way things are going,” he said.

Export concerns

Indeed, prices of soft red winter wheat, of lower protein, tumbled 2.8% to $4.74 ¾ a bushel in Chicago on Friday for December delivery, a fresh four-year low for a spot contract.

Futures in higher protein wheats fared a little better, with Kansas City hard red winter wheat for December down 2.0% at $5.58 ½ a bushel.

The decline was blamed in part on further strength in the US dollar, which hit a four-year high against a basket of currencies, before easing back to show 0.6% gains as of 11:30 Chicago time (17:30 UK time).

A stronger dollar undermines prices of dollar-denominated commodities by making them less affordable to buyers in other currencies.

US wheat exports have already disappointed so far in 2014-15, with soft red winter wheat commitments running at less than half the pace of last season.

“We face too much global competition,” Mr Henry said.

‘Overwhelmingly bearish’

However, further reports of strong results from the early US row crop harvest were also cited as fuelling the retreat, with the world’s ample supplies of low quality competing for feed buyers with strong corn supplies.

Frank Laplaca, vice-president of commodities at Chicago-based broker Futures International, said: “We are continuing to hear of tremendous yields. In central Illinois, they are reaching into the 300s bushels per acre for corn.”

On soybeans, market talk is that if yield results from above I70 highway, which separates the north and southern corn belts, turn out as well as those from below, “we are looking probably at a 50 bushels-per-acre national yield,” Mr Laplaca said.

“The story is so overwhelmingly bearish.”

Corn for December was 1.7% lower at a four-year low of $3.32 ½ a bushel, while soybeans for November dropped 1.3% to a four-year low of $9.72 ½ a bushel.