Milling & Baking News - September 30, 2014 - 14

Business 

After amazing surge, hard wheat
cash basis seen remaining strong
Continued from Page 1

Reflecting the cash spring wheat market's heightened sensitivity to protein
gradations in what was expected to be
a year of mostly lower-protein supply,
13.5% protein and 14.5% protein levels
were quoted after an absence of three
years. The crop in the six major spring
wheat states was 86% harvested as of
Sept. 21, six percentage points behind
the five-year average pace of 92%, with
harvest in top-producing North Dakota only 82% completed compared with
91% as the state average for the date.
Concerns about spring wheat quality due to excessive moisture during
much of the harvest season also provided the basis a boost.
In contrast, dry conditions
Spring wheat prices
across southern portions of the
(Minneapolis basis, 14% protein)
hard red winter growing region
per bu
pushed up the average protein
Premium
Futures
$12
level of the winter wheat crop,
with benchmark 12%-protein
$10
hard red winter wheat in rela$8
tively tight supply. Despite the
greater-than-usual supply of
$6
high-protein hard red winter
wheat, cash basis levels have
$4
remained historically strong
$2
on support from the nosebleed
basis levels for spring wheat.
$0
June
July
Aug.
Sept.
Early last week, the basis on
2014
12%-protein hard red winter
wheat in Kansas City was $1.35
50c a bu are regarded as nearly par for to $1.45 a bu over the Kansas City December future, compared with $1.06 to
the course in Minneapolis.
For millers and bakers, the wheat $1.16 over a year ago, and 14%-protein
premium volatility creates a height- wheat in Kansas City was $1.45 to $1.55
ened level of market risk. While wheat over December, compared with $1.15 to
futures prices may be hedged, price $1.25 over a year ago.
High-protein hard winter wheat
protection from swings in cash wheat
may be substituted for spring wheat
premiums is more difficult to secure.
A source at a major baking company in the milling of certain flour blends.
indicated the risk premium related to Substitution already was occurring
high basis levels has risen from about and likely will increase, according to
10% of the cost of flour to 17% or 20%, wheat merchants.
Adding to the market's usual fundawhich he attributed mainly to poor rail
performance for the past several months. mentals has been a "flip" in the price
"The decline in futures prices over relationship between Minneapolis and
the past 45 days has been offset by Kansas City (traded in Chicago) wheat
the increase in basis levels," the baker futures prices with Kansas City consaid. In some cases bakers were not tracts trading at a premium to Minwilling to lock in forward basis at neapolis almost continually during
severely elevated levels for October, the past year. Historically, Kansas City
leaving that component of flour con- trades at a discount to Minneapolis.
One grain merchant said mills had
tracts uncovered, while locking in the
wheat needs pretty well covered for
futures and millfeed components.
The underlying fundamentals of the October-December quarter, which
the current strong cash spring wheat mitigated the effects of the extreme
basis are the low average protein of highs, but going forward, they will
the 2014 crop, slow harvest progress have to deal in a market that probably
and ongoing poor rail performance. won't be to their liking. He suggested
is set by the U.S. Department of Agriculture based on what buyers are bidding
or paying for cars offered on the spot
market, unlike in Kansas City, where a
committee of traders meets daily to set
the hard winter basis, based on the day's
activity in the cash hard red winter
wheat market. The spring wheat cash
basis in Minneapolis tends to be much
more volatile than the hard winter cash
basis in Kansas City, even with fewer
rail cars typically offered on the spot
market in the latter. Price moves of more
than 10c a bu in the Kansas City basis
attract attention while changes of 25c to

14 / September 30, 2014 Milling & Baking News

mills "buy the dips" even if those prices may not be as low as they want.
"This doesn't look like a market that's
going to collapse and stay down," the
merchant said. However, he noted that
if a mill has flour sold, it needs to cover
its wheat needs immediately.
Mr. Freed estimated fourth-quarter
flour coverage near 66% of needs and
January-March 2015 coverage at only
15% as most buyers have been "waiting and hoping for lower basis and
better logistics."
The situation was even more precarious for 15%-protein spring wheat
because there is no other wheat substitute for bakers requiring flour milled
from the highest protein wheat. Consequently, he expected cash basis levels
for 15%-protein spring wheat to remain
well above 14% levels. Last week the
cash basis on 15%-protein spring wheat
still was over $6 a bu. It topped out
at $6.75 a bu on Sept. 10 and has held
above $6 (on the high side) since Sept. 2.
Mr. Freed suggested high protein
users will need to buy lower protein
supply and add gluten.
Spot flour prices for spring wheat
and blends that contain spring wheat
have bounced around because of the
gyrating cash spring wheat market.
The spot price of spring standard flour
in Minneapolis as calculated by Milling & Baking News surged $5.45 a cwt,
to $26.10 to $26.20 a cwt, on Sept. 11
only to plunge $8.10 a cwt, to $17.70 to
$17.80 a cwt, on Sept. 15. Typical daily
flour price adjustments are more in the
range of 5c to 25c a cwt.
The sensational premiums for spring
and winter wheat in Minneapolis and
Kansas City have done little to motivate
farmers to sell additional wheat. Country prices for wheat have not been attractive because of four-year low wheat
futures prices and rail shipping woes, in
which high shipping costs have pushed
prices at the farm level down while raising prices at delivery points.
Overall, the wheat market remained
in bearish territory, according to most
analysts. Record world wheat production and relatively high U.S. wheat prices, due in part to problematic rail logistics and the strong basis levels, have limited foreign demand, which has tended
to favor lower-priced wheat from the
Black Sea region. But U.S. prices continuing to trade at fresh four-year lows
are becoming more competitive. And
U.S. winter wheat seeding was running
ahead of the average pace with hard red
winter going into the ground with the
best soil moisture profiles in many areas
in recent years. MBN
bakingbusiness.com / world-grain.com

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

Milling & Baking News - September 30, 2014

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