Market Matters Blog
Cliff Jamieson Canadian Grains Analyst

Wednesday 08/27/14

Is Tuesday's Minneapolis Cash Trade a Sign of Things to Come?

All indications point to a large global wheat crop this year. The most recent USDA report forecast global production at a record 716.09 million metric tonnes, up almost 11 mmt or 1.5% from last year's crop. Sounds bearish? Perhaps not so.

This line chart indicates the trend in Minneapolis milling quality spring wheat basis levels, as determined by the midpoint of the reported daily range of basis levels traded, for 12% to 15% protein levels. Cash basis narrowed suddenly on Tuesday, indicating a heightened concern over the prospects for this year's crop quality. (DTN graphic by Nick Scalise)

Crop quality around the world has the potential to become a larger and larger issue. For example:

-- Recent reports have France importing wheat to bring up their quality in order to meet export commitments, with a large percentage of French production failing to meet milling quality. Algeria, one of their top customers, has since stated that they will refuse to accept production sourced from multiple originations.

-- While Ukraine's total harvest is suggested to fall 13% due to the conflict with Russia and fighting in the country, from 63 mmt to 55 mmt, 35% of the crop is estimated to reach feed quality, up from 25% to 30% last year.

Weather remains the key for the North American harvest. As of the most recent weekly USDA Crop Progress report, 27% of the spring wheat crop had been harvested, down from the five-year average of 49%. The State of Washington is well ahead of average, Idaho and Montana are on track with the five-year average, while Minnesota and the Dakotas are well behind average as of August 24. Minnesota had taken off 22% of the crop versus the average of 66%. South Dakota had harvested 57% as compared to the average of 87% and North Dakota had harvested 10% as compared to the 43% five-year average. In addition to the delays, the overall Good to excellent crop rating was reduced by two percentage points to 66% from the previous week. The Prairie harvest remains in early stages.

Tuesday's cash trade in Minneapolis showed just how jittery this market is, with early reports of low protein seen in harvested new crop. As seen on the right of the attached chart, Tuesday's trade in milling quality spring wheat on the Minneapolis Grain Exchange for delivery of 12% to 15% protein Chicago/beyond saw basis levels reported raging from unchanged (12% protein) to $1.75/bu higher(15% protein).

The high end of the reported trading range for 12% protein was up 5 cents to 95 cents over the September. The high end of the reported trading range for 13% protein was up 65 cents to $2.25/bu over the September future. The high end of the reported trading range for 14% protein was up $1.05/bu to $2.90/bu over the September while the upper end of the trading range for 15% was up $1.75/bu to $5/bu over the September future. The September closed at $6.12 3/4 cents on Tuesday.

This is a remarkable one-day move and could signal what's to come.

Cliff Jamieson can be reached at

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Posted at 5:19PM CDT 08/27/14 by Cliff Jamieson
Comments (1)
This is interesting with OK State's Kim Anderson saying; "Reports indicate that the average hard red winter (HRW) wheat protein in Texas, Oklahoma, and Kansas is about 14 percent. Millers report that 14 percent protein HRW wheat is an unprecedented problem. Reports indicate that the nearest acceptable protein wheat (in large quantities) is in northwest Nebraska. The protein premium is inverted as lower protein HRW wheat has higher demand than relatively high protein HRW wheat." It seems this price inversion of lower protein HRW wheat might keep HRW wheat out of the feedlot in the South - maintaining corn demand. Currently, it seems the premium for high protein wheat; not a discount for low protein, along with the sever discounted basis for corn should/might also keep wheat from returning to the feed channels in the North. Some diseased SRW will be fed but the level of inclusion in the ration is limited because of animal health issues. As it now looks, wheat will not replace corn (to a great degree) in feeding rations- as least in the US. Freeport, IL
Posted by Freeport IL at 8:35AM CDT 08/29/14
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