Milling & Baking News - September 21, 2004 - 25

N E W S F E AT U R E
wheat and hard red spring wheat cash premiums from current extraordinarily high
levels, so bakers should be cautious about
committing to contracts locking in cash
wheat premiums at current levels.

Surging cash wheat markets
Cash wheat markets have roared to historically high levels this summer, and while
some relief could be in store for wheat buyers in coming months, it might not be all
that significant, said Bart Brummer, senior
wheat merchandiser, The Scoular Co., Indianola, Iowa, and Gary Redmann, senior
grain merchandiser, ConAgra Foods, Inc.,
Omaha.
Underpinning market strength for the
hard wheats has been the slow pace of
farmer selling.
"Nobody has any ownership right now,
except the farmer," Mr. Redmann said. "We
anticipate seeing some movement, but it
likely will not be enough to break the basis
back to so-called 'traditional' levels."
Mr. Brummer agreed, stating, "The producers seem to have little need for cash. Recent winter board prices for wheat exceeding $4 a bu have encouraged a wait-and-see
attitude. The board at a carry further suggests to the grower that the market will not
inflict a penalty while he makes a decision.
The upcoming fall harvest has moved some
wheat to the elevator and terminal storage.
But for now, it appears the producer is willing to wait for better prices and perhaps
deliver his fall crops to town."
The market for hard red winter wheat
has struggled with cash ownership since
harvest, Mr. Brummer said.
"In recent weeks, premiums have begun
to take the cash carry out of the market as
front-end premiums gain strength," Mr.
Brummer continued. "The flattening cash
basis has started to loosen up some elevator bushels as the cost of holding grain now
exceeds the returns."
Spring wheat growers still were struggling to get the crop out of the field in many
areas, Mr. Brummer said.
"The crop is wet, still above 17% moisture in many areas," Mr. Brummer said.
"Producers have elected to harvest the wet
crop and use commercial drying."
Mr. Redmann added, "The U.S. spring
wheat crop has been damaged by recent
frost and rains. But I think there is still
enough good wheat around that we can
work our way through it. The spring wheat
basis will act like those for hard red winter
and soft red winter. It has to do a lot of the
work of getting the wheat to market."
Mr. Brummer said the most notable result
of the spring wheat harvest to date was the
dearth of higher protein. This has led to a
basis rally for wheat with 14.5% and higher.
Premiums on such wheat were trading 50c

26 / Milling & Baking News, September 21, 2004

to $1 higher than a year earlier. Cash premiums on 15% protein rose to the highest
levels since 1994.
"The market appears to be in the process of
changing blends and utilizing gluten as a response to these sky-high premiums," he said.
With regard to blends, Mr. Brummer
elaborated, "The year to date has been variable in terms of the substitution equation.
The Minneapolis/Kansas City spread has
traded from 7c to 27c during the past 45
days. The lower-protein spring wheat crop
first attempted to replace the hard red winter wheat only to have the board spreads
begin to compensate for quality concerns.
Today, we see hard red winter wheat buying
its way into the hard red spring wheat grind
as the inter-market spread has widened
back out and appears to be comfortable at
a 27@30c spread. Hard red winter wheat
should continue to enter the Minneapolis
marketplace."
Mr. Redmann concurred, adding, "Today
it looks like 14% and 15% protein hard red
winter should remain in good demand, especially if the Kansas City/Minneapolis wheat
futures spread stays at 25@35c per bu."

No relief in sight in soft wheat
Turning to the soft red winter wheat crop,
which suffered from widespread incidence
of vomitoxin, Mr. Redmann said, "The soft
red winter wheat crop was hurt pretty much
in every part of the U.S. and Canada, which
is a different scenario from last year, when
good wheat sill could be found in Canada

and Ohio. The basis should stay strong and
could even go higher if millers are forced
into using Idaho soft winter wheat to blend
with their soft red winter.
"I think most people have the majority of
their soft red winter wheat needs covered
for the next three to four months, as they
realized how tight the market could become
and didn't hesitate to buy forward."
Mr. Brummer added, "The vomitoxin in
the soft red winter wheat also has contributed to the strength of the hard red winter
wheat basis, as some cheapest-wheat users
with vomitoxin restrictions have moved
to the procurement of hard winter as their
cheapest wheat. Pet food applications
would be the most noticeable."
Mr. Brummer said the recent futures rally,
a narrowing of cash carries and the fall harvest should combine to put more wheat into
the pipeline.
"Most users seem to have adequate
nearby coverage," Mr. Brummer said. "The
marketplace feels long and has been able to
pass that long on to importers and end users. Trading replacement has been a way to
price sales. If the market has to address an
increase in nearby loading, I suspect it will
have to readdress its position and evaluate the opportunity of excess ownership at
these unusually high basis levels."
Mr. Redmann said, "If there was going to
be a rush in wheat movement, we should
have seen it by now. So I think it will be
small in comparison with recent years." MBN
- Jay Sjerven

bakingbusiness.com / world-grain.com

http://www.bakingbusiness.com http://www.world-grain.com

Milling & Baking News - September 21, 2004

Table of Contents for the Digital Edition of Milling & Baking News - September 21, 2004