What’s Keeping A Lid On Wheat Prices?

Offsetting global production, ample protein, U.S. dollar to blame

By Tracy Sayler

World wheat production and stocks have been declining over the past five years. Wheat production and stocks amongst the top three major exporters (European Union, United States, Canada) is down from last year.  All the while, world wheat usage continues to trend upward.

Then what’s keeping a lid on wheat prices?

That was a key question at the North Dakota Wheat Commission’s seventh annual Crop Outlook Forum held recently in conjunction with the International Durum Forum in Minot.

A primary factor is that Argentina, the former Soviet Union, and Eastern Europe have all increased their production of wheat over the 2000-01 marketing year.  This offsets the decline in wheat produced in major wheat exporting countries last year, and means that even though global wheat stocks are down, countries that import wheat still have a number of supply sources to select from.

Still, having good quality wheat to sell in a world market where stocks are tightening spells market opportunities too.  “We’re perched on the edge of something here, where the market could get volatile if there were any surprise news to come along,” says Neal Fisher, NDWC administrator.

High protein wheat is still in demand, but Fisher says “everyone has it, which is keeping premiums flat.” Protein in the winter wheat growing area this year averaged just over 12%, and spring wheat, 14.4% in the Northern Plains region.  Canada’s weather-stressed wheat crop also was higher in protein in 2001.

Fisher says that durum faces some of the same market dynamics as spring wheat. World durum production in 2001 is down 8% from the previous year, with production in the top three leading global durum producering countries off significantly. EU durum production is down 15%, Canada, down 48%, and the U.S., down 23%.  However, durum production in 2001 in Algeria is estimated to be up 133% from the previous year; Morocco, up 140%, and Tunisia, up 43%.

There are also new players in the world durum production picture— a group of smaller durum-producing countries including Syria, Mexico, Australia, and Tajikistan—whose production when combined is beginning to rival that of the combined production of the U.S., Canada, and the EU.

Jim Pederson, NDWC marketing director, says that U.S. spring and durum wheat will still be very competitive in the world marketplace in 2002, since near ideal harvest conditions in 2001 yielded a high quality crop which Pederson calls “a strong crop to market, domestically and internationally.”

Pederson says about half of the 2001 spring wheat crop in the Northern Plains (North Dakota, South Dakota, Minnesota, Montana) had a test weight of 60 lbs or better, and over 80% of the crop had a test weight over 58 lbs.  Total defects are down, and over 70% of the region’s spring wheat crop grades #1 Northern Spring or better.  Protein and milling and baking strength is high, and sprout damage is very low.

“The spring wheat (in 2001) is what producers would call ‘a pretty looking crop.’ Thanks to favorable harvest conditions and a shift in varieties grown, we’re seeing color coming back to the crop,” Pederson said.  “There’s a marked improvement in color or vitreous kernels, with about 75% of the crop qualifying as #1 Dark Northern Spring.  Color is important to Pacific Rim markets, where color is correlated with desirable milling and end use characteristics, and there can be market discounts if color is lacking.”

Pederson said the 2001 durum crop is also much more marketable compared to the 2000 crop, due mostly to a big reduction in the amount of sprout damage. In 2000, about two thirds of the durum crop was rained on, and only about half the crop met the desired falling number count, which measures sprout damage.  In 2001, about 97% of the region’s durum crop met the desired falling numbers criteria.

More specific details on the quality of hard red spring wheat and durum produced in the region in 2001 is available on the NDWC’s web site at www.ndwheat.com.

There are durum production areas where Fusarium head blight was a problem, but both Pederson and Fisher point out that wheat buyers are able to adjust their contract specifications to limit damage levels, and thus assure that they get the quality of durum that they want.