Chicago | Reuters — Excessively wet conditions in the northern U.S. Plains and Canadian Prairies have hurt the quality of the region’s spring and durum wheat crops, potentially tightening supplies of top grades of the grains, handlers and agronomists said.
Rains and heavy dew have slowed the harvest and, worse, caused mature, un-harvested wheat kernels in some areas to begin to sprout, severely damaging quality and triggering steep discounts from grain buyers of US$1 or more per bushel.
“It’s really bad news in a year like this, when commodity prices are so low to begin with,” said Joel Ransom, an agronomist with North Dakota State University in Fargo.
Farmers in North Dakota, by far the largest U.S. spring wheat producer, have already endured low prices for soybeans, the state’s top-grossing crop. Soy surpluses in North Dakota and elsewhere have ballooned due to several years of bumper harvests coupled with slowing export demand as the U.S trade war with top soy buyer China enters its second year.
Hard red spring wheat, grown in the northern Plains and milled into flour for bagels, pizza dough and for blending with lesser grades of wheat, typically represents about 20-30 per cent of the total U.S. wheat harvest.
U.S. and world wheat supplies remain ample overall, but the quality problems may lift cash prices for the best grades of wheat sought by millers.
North Dakota’s spring wheat was 73 per cent harvested by Sunday (Sept. 15). Crops still standing due to weather delays — some 86 million bushels — are likely to have the poorest quality.
“We’ve had enough rains coming through that anything is out there now, or that has been recently harvested, has probably been challenged,” Ransom said.
In Canada, the wheat harvest is less advanced. Farmers had gathered 13 per cent of Saskatchewan’s spring wheat crop as of Monday, the province said in a weekly report. Harvest progress for all crops in the province totaled 23 per cent, half the five-year average pace of 50 per cent.
The top grades of U.S. and Canadian spring wheat “just are not going to be available in the same volumes,” said Chuck Penner, analyst at Winnipeg-based LeftField Commodity Research. He added that the weather was also causing problems for durum wheat, used to make pasta.
“Durum is looking awful too… Half the crop might end up essentially going to the feed market. We are just starting to see the (market) reaction,” Penner said.
Benchmark December spring wheat futures on the Minneapolis Grain Exchange have climbed about eight per cent since hitting a contract low on Sept. 3, as the quality problems were beginning to emerge.
— Julie Ingwersen is a Reuters commodities correspondent in Chicago.
Returns to Prairie farmers through the Canadian Wheat Board were up nearly 57 per cent in 2007-08 to a record $7.2 billion, the CWB reported Wednesday.
Total pooled revenue was up 47 per cent for wheat and up 94 per cent for both durum and designated barley, the CWB said in its annual report.
The board also said it "far surpassed" its targets in topping its international competitors' prices, getting a net $13.81 per tonne above competitors' values for wheat and $48.84 for durum, compared to its targets of $6.90 for wheat and $24.50 for durum.
For designated barley, the CWB said it achieved $29.47 per tonne above competitors' prices, below a target of $33.70.
Market volatility, however, led the CWB to take a hit in the contingency fund that underwrites the risks associated with its producer payment options (PPOs). The fund's current deficit is $28.9 million, the CWB reported.
That deficit stems from the "extreme volatility" of futures and basis values, plus a forward inverse in market values from December 2007 to March 2008, which created risk-management issues for the PPOs.
The "often-poor" correlations between U.S. futures markets and prices in other markets into which the CWB sells, when coupled with volatile basis levels, were "particularly challenging," the board said Wednesday.
"In these extraordinary market conditions, many grain companies chose to withdraw some of their pricing options, but we believed it was important to honour our commitment to Prairie farmers by continuing to provide these programs, " CWB chairman Larry Hill said in the board's release.
Nevertheless, Hill said, "not only was the CWB able to capture high international prices, its marketing structure allowed Prairie farmers to participate in price rallies when supplies were depleted in most other exporting nations."
The CWB's combined revenue for 2007-08 sits at $8.42 billion, up from $4.95 billion the previous year. Direct costs such as purchases, freight and terminal handling for 2007-08 were $2.86 billion, up from $1.66 billion the previous year.
Among other costs, administrative expenses were $75.3 million, up slightly from $71.8 million the previous year, and grain industry organization costs for 2007-08 were down at $1.46 million, compared to $2.02 million the year earlier.
That leaves 2007-08 net earnings of $5.72 billion, from which $5.24 billion was paid out to pool participants, compared to pool payouts of $3.5 billion surpassing net earnings of $3.46 billion in 2006-07.
Another $1.92 billion was paid out in 2007-08 to PPO participants, up from $1.06 billion the year earlier.
The CWB received a total of 13.37 million tonnes of milling wheat from producers in 2007-08, along with 3.58 million tonnes of durum, 2.44 million tonnes of designated barley, 455,500 tonnes of Pool A and Pool B barley and 1.21 million tonnes of grain via cash trading.