Grain Industry Perspective on Marketing the 2001 Wheat Crop

At the NDWC Crop Outlook Forum, a panel consisting of wheat industry members gave their perspectives on marketing the 2001 wheat crop.

Rolly Shepp, performance marketing leader, Cargill AgHorizons, Dickinson, says that “high protein wheat is all over,” and the availability of higher protein winter wheat is replacing hard red spring wheat in some West Coast mills.  “The higher protein hard red winter wheat crop is going straight to the grind. Selling at 20 to 25 cents below spring wheat values, it takes southwest N.D. out of the market.”  He says the average protein coming into his facility is running around 14.6%.  “In fact, we can’t seem to find low protein.  With all the protein around, we’re basically giving it away.”

Shepp says that the high value of the U.S. dollar relative to other currencies also continues to curb U.S. wheat export sales.  U.S. spring wheat in particular is vulnerable to the effect of the U.S. dollar, since spring wheat has the highest value of the six wheat classes, next to durum. “People can’t afford to come in and buy U.S. wheat when our dollar is 20 to 30% greater than theirs,” he says. The hope is that the exchange rate will eventually narrow, making U.S. commodities a better buy.

Still, he points out that U.S. spring wheat exports are on track with the pace of sales at this same time last year.  While sales of hard red spring are off from last year in eastern Europe, Taiwan, and Africa, sales are higher than last year in some western European countries, Japan, China, and other Asian countries.

With cash grain prices tending to remain stagnant, farmers need to look closely at using more preharvest and more sophisticated strategies to sell their grain. “I feel that in order to survive in this market system, a lot more grain needs to be sold prior to harvest, with some of these prices locked in.  For the last two to three years, it hasn’t paid to carry much wheat beyond harvest. The market just hasn’t reacted much.”

For example, some of Shepp’s customers used a no-basis (or futures-fixed) contract after the 2000 harvest. They locked in the December Minneapolis futures price at $3.70, left the basis open, and prior to delivery, set the local basis on that contract.  It was 20 cents under, netting a price of $3.50.  After the 2001 harvest, some producers are doing just the opposite.  They are using basis (also called basis-fixed) contracts, locking in a favorable basis with the elevator, leaving the futures price to be set later.

Maury Brannan, an Enid, Okla. agribusiness consultant, noted that durum acreage abandonment was higher than normal in Canada in 2001, because of dry conditions in western provinces.  He projects that harvested durum acreage could be up 10 to 15% in Canada next year. His early call on durum production in 2002 is 33 to 34 million metric tons, which would be more than the 31.6 mmt estimated to be produced globally in 2001, but about on par with the 34.1 mmt produced in 2000.

Dan DeRouchey, manager of the Berthold Farmers Elevator, says that buyers will be sensitive to DON levels in durum. DON, or deoxynivalenol, is a contaminant produced by Fusarium head blight, or scab.  “It’s a big issue for processors and also for the exporter.”

He expects a lot of damaged grain to be cleaned this winter to lower DON levels.  “So far it hasn’t paid to do that, but I suspect that as we go into winter, we’ll see prices bumping up on the top end as stocks get shorter, and we’ll see the advantage of running durum across the gravity table. I’m talking about test weights of 55 pounds or less, that’s going to have a lot of DON levels.” He says that the price discount for DON is running about $1.40/bu for 6 to 10 ppm DON, and he expects the discount to hold close to that level through the winter.

DeRouchey says that with a shorter supply of durum available, “you can see a crunch coming,” which should be favorable for price potential. “Keep that in mind for next year,” he urged prospective durum growers.  “With good management, there’s a place for it on your farm.”

Greg Konsor, wheat director for Conagra, Omaha, Neb., says that the current stocks-to-use ratio for wheat is about as low as it was in 1995. He says that there are three reasons why grain prices haven’t responded: 1) the high value of the U.S. dollar which makes it harder to compete in the world market; 2) Importing countries have become more efficient in the way they store and buy grain supplies; 3) Offsetting wheat production in areas such as Turkey, Pakistan, India, Eastern Europe, and the Former Soviet Union.  These areas had been importers, but have produced enough wheat this past year to be able to export their surplus production. 

“When they do have good production, they are quick to dump it on the world market,” Konsor says.  “They don’t have the infrastructure we do; the storage and facilities where we reward people to hold grain off the market.  So the U.S. is the carrier of stocks until we need them in the marketplace.”

China is a promising wheat buyer over the long-term, says Konsor.  He pointed out that about 75% of wheat in China is irrigated, but water problems will likely prompt the Chinese government to slowly lift farm subsidies for wheat irrigation.  “So we’ll probably see some of this wheat shift to higher labor, more intensive crops with higher returns.” 

Konsor says that he is also encouraged by small, private mills in China that are beginning to buy wheat on their own, instead of through the Chinese government.  “I’m hoping that under the World Trade Organization, that China will let these mills do more buying. I think this will be good for spring wheat, because they do like it.  So there’s good growth potential there.”