Canada Markets

Protein is just one characteristic of wheat that can have a tremendous impact on price, but at the same time, is most sensitive to available supplies. The attached chart clearly shows swings in protein during the past eight years. In 2006/07, the premium for 14.5% protein over and above 13.5% protein was $4.56 per metric tonne or 12 cents/bushel. The opposite extreme as seen on this chart is in 2010/11 when the same premium was $42.82/mt or $1.17/bu. Both extremes were closely tied to the extremes in crop quality which determined the availability of protein in the crop.

So far in this crop year, protein is squeezed even further than showed on the chart. In August, I quoted an EU official who suggested that quality premiums were "disappearing at the rate of knots." Crops in both France and Germany resulted in good quality.

The Canadian Grain Commission's Preliminary 2012 Quality Data by crop region indicates Prairie quality to range from 13.1% to 14.2% as of Oct 22. The higher protein levels were seen in crop regions 1, 2 and 3 which take in the entire Manitoba crop, as well as region 9 in central Alberta. These four regions ranged from 14.1 to 14.2% protein. Samples from the Saskatchewan crop, with the exception of crop region 5 which is the south-west, ranged from 13.7% to 13.9% protein. South-west Saskatchewan as well as the remaining two regions of Alberta (southern region 8 and northern region 10) ranged from 13.1% to 13.2% protein. Again, bear in mind this is preliminary data, obtained from just 1,507 samples and based on 13.5% moisture.

Overall Canadian protein for 2012 is at 13.7% protein, while the 10-year average is 13.8%.

The U.S. was blessed with not only a large spring wheat crop, but also it is of high quality. The October World Agriculture Supply and Demand Estimates report (WASDE) estimated the 2012/13 U.S. spring wheat crop at 505 million bushels, or 13.7 million metric tonnes, as compared to the 398 million bushels or 10.8 mmt produced in 2011/12, an increase of 26.9%.

The Dakota Gold newsletter for October, found at ndwheat.com, summarizes U.S. crop quality from samples collected from Minnesota, Montana, North Dakota, South Dakota, Idaho, Oregon and Washington. 98% of the spring wheat grown in the U.S. is grown in six of the seven states listed, with Oregon being one of the states that produce the remaining 2%. Overall protein, based on 12% moisture, is 14.6%. This compares to 14.6% in 2011 and a five-year average of 14%.

Markets have reacted to this supply of North American quality wheat. Current Portland bids for US No. 1 Dark Northern Spring reflect a premium of only 20 cents/bu or $7.35/mt over and above the 13% price for protein levels between 14% and 16%.

Here in Canada, the CWB's Harvest Pool Return Outlook indicates a $2/mt premium above the 13.5% PRO for 14% protein, with nothing offered beyond 14%. There exists a $2/mt discount for each 1/2% protein under 13.5% -- 13% is $2/mt less while 12.5% is $4/mt less.

In the spot cash market, the CWB's price calculator indicates a $1.82/mt premium for each 1/2 percent over 13.5% up to a maximum of 14.5%, while discounts for lower grades are more severe than indications for the Pool, which amount to a $3.64/mt discount for each 1/2% under 13.5% down to 12%.

Protein premiums can be an important factor in the new de-regulated environment while having the potential to significantly add to price. While over-all markets seem under pressure, the possibility exists for these premiums to vary by company. It would seem that this market may be subdued moving forward due to large North American supplies, but at the same time should be kept on the radar for signs of change.

Alberta Agriculture encourages producers to 1) take the time to understand these spreads and how they can affect you, 2) have your grain tested and know the quality of your production and 3) utilize the various market outlets at your disposal to find the best alternatives.

Cliff can be reached at cliff.jamieson@telventdtn.com

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