Milling & Baking News - July 27, 2004 - 26

N E W S F E AT U R E

booked through September, Mr. Meyers said. "Some might want to
hold off a bit on Minneapolis because of harvest," he said. "But after
the decline in prices during the last couple of months, we're at relatively good values. With the major part of the corn and soybean season
coming up, you want to have 60 days' coverage or more.
"For the fourth quarter, look to begin booking when the Chicago
December future is in the $3.50 area, the K.C. December is around
$3.70 and the Minneapolis December around $3.85."
Mr. Freed said bakers should be covered now for August-September. "If we have another 25c break into corn lows in August, the baker
should cover October-December," Mr. Freed explained. "If there is
any change to the worse in weather, take six months' coverage."

Firm cash wheat markets
With declining wheat futures prices eroding flat prices in the
country, the cash wheat basis will have to do most of the work of
origination, according to Gary Redmann, senior grain merchandiser, ConAgra Foods, Omaha.
"The basis levels in Kansas City are historically high this year
because of several factors," Mr. Redmann said. "The farmer has not
sold his normal 20% to 30% from the fields and instead has stored
his wheat at the elevator or on the farm. The elevators have plenty
of space in which to store wheat and earn the carry. Freight rates are
up in some cases more than 10c per bu from last year, and with light
receipts, the end users have to pay this with higher basis levels."
Bart Brummer, senior wheat merchandiser, The Scoular Co., Indianola,
Iowa, said, "The single and only issue relative to the strength of the hard
winter cash market is the lack of farmers' interest in selling wheat. And
this holds true across the hard winter region, from Texas to Nebraska.
But the producer won't be able to sit for long. There's likely to be very
large fall crops to be harvested. I would expect growers to haul wheat to
town in August and September, and to sell some of that wheat."
The cash wheat market for hard red winter wheat could stay firm
for the next six to eight weeks because of a lack of receipts and a
decent export program, Mr. Redmann added. "The U.S. went into

26 / Milling & Baking News, July 27, 2004

the summer with an export program for all-wheat that was about 2
million tonnes more than last year," Mr. Redmann said.
Higher freight rates have made end-users pay above historical levels,
but wheat movement has been influenced more by the lack of freight
availability and initially swift movement, Mr. Redmann observed.
"The country came into harvest without much freight bought," he said.
"This was due to its high cost and, more importantly, because of what
we went through last spring, not knowing when or even if the freight
would show up. You can't unplug an elevator in July if the freight
doesn't show up until September. All of this has added up to less supply
of wheat available to the market. The U.P. saying that it will have to give
up some business will put even more pressure on the other carriers."
Mr. Brummer said freight rates per se did not affect the cash market so
much as the type of freight ordered by elevators. Railroads offered wide
discounts to general freight for shuttle trains at harvest. Elevators sought
to take advantage of those discounts. But in the process, too many of the
available rail cars were locked into shuttle trains. The outlets for shuttle
trains were limited, primarily export elevators. The tie-up of cars into
the shuttle market reduced elevators' ability to take advantage of spot
opportunities and rationed supply to the domestic market.
This year's hard red winter crop will challenge both end users and
shippers, Mr. Redmann said. "For shippers, because of sprout damage that often is difficult to detect at the elevator, the value of wheat
could be lower than expected, once end users start asking for falling
number results on rail cars before shipment," he said. "For end users,
when elevators try to blend away their quality issues, they may transform whatever good wheat there is out there into mediocre wheat
at best. My advice to country elevators is to know what quality you
have before you load it. You can't always judge falling number levels
by sprout damage amounts alone. Test. Test. Test."
Turning to the hard red spring wheat market, Mr. Redmann said, "If
the flat price of spring wheat to the farmer stays where it is or goes lower,
I think the farmer will tend to store more and sell less of it at harvest.
After a banner year last year for quantity and prices, I think the producer
won't have to sell much to raise cash. The row crop harvest could accelerate some selling going into the fall, but I don't expect a mad rush.
"The other factor that could rear its ugly head for spring wheat is if
vomitoxin shows up or if the rains continue and we have major sprout
damage issues. This would lead to higher basis levels for milling quality and lower flat prices for the farmers with the poor quality."
Mr. Brummer added, "It looks as though there will be a lot of 13.5% protein spring wheat this year. A large spring wheat crop will push down on
inter-market spreads. It also will pressure forward premiums. On a cash
basis, hard spring wheat is trading near even money with hard winter
wheat across the eastern gateways. The market will perceive that spring
wheat could earn a greater share of the grind versus hard winter wheat."
Mr. Brummer suggested the spread between Kansas City and Minneapolis wheat futures prices could narrow into the single digits.
"We now know that the hard red winter crop is smaller than we
thought it was a month ago, and it looks like the spring wheat crop
could be another bin buster," Mr. Redmann said. "The futures markets have started to reflect this situation as we see Kansas City gain
on Minneapolis. If this trend continues and Kansas City moves into
less than a 10c discount to Minneapolis, we could see some substituting of hard red spring wheat for winter wheat. This would become more pronounced if the spring wheat crop is low in protein."
Of all the wheat classes, soft red winter wheat and soft white
wheat have been the most challenged with regard to quality this
year, Mr. Redmann said. "The only three words I can think of on the
soft wheat crop this year is: 'Don't be short!'," he said.
"Last year, when the quality was poor in some areas, the market
looked to Ohio and Ontario for bushels," he said. "This year, that
may not be an option. At this time, the jury is still out on the quality
up north, but if it turns out to be high in vomitoxin, you had better
just close your eyes and book the offers to get covered." MBN
- Jay Sjerven

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Milling & Baking News - July 27, 2004

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