Milling Journal

by Karl Ohm, Milling Journal associate editor

High carryout stocks from the 2009 wheat crop in the United States, varied protein levels and significant reductions in wheat plantings, along with recent concerns about the impact of Russia’s drought on spring wheat supplies, will pose key challenges for the marketplace in the months ahead. However, millers can anticipate an above-average 2010 milling wheat crop.

This was one of the take-away messages offered by Justin Gilpin, CEO of the Kansas Wheat Commission and Kansas Association of Wheat Growers, Manhattan, at the International Association of Operative Millers (IAOM) Central and Wheat State districts 2010 Summer Meeting and Technical Conference, July 29–31, at The Resort at Port Arrowhead in Lake Ozark, MO.

To view Justin Gilpin's slides from his presentation at the meeting, click here.

“The Central and Wheat State districts continue to represent a cornerstone in winter wheat production, and I don’t expect the traditional trade flows to change dramatically,” explained Gilpin. “However, Kansas wheat with fairly good protein levels of 12% or more may move into markets in Montana, where protein levels are lower.”

In looking back at 2009, Gilpin said that the United States is dealing with one of the largest carryout levels on record, with nearly a year’s worth of domestic use in supply. The carryout is projected to be nearly 1 billion bushels. “While the quality of the new crop is on everyone’s minds, the reality is that there is still plenty of old crop remaining that will be a factor in blends,” he said.

Gilpin also mentioned that a useful resource, which monitors and publishes test weights and protein levels, can be found at the web site: www.plainsgrains.org. Another useful web site is Kansas State University’s International Grains Program and grain quality web site: www.grains.ksu.edu/IGP. “These sites are good reference tools that monitor wheat quality in the major wheat- producing states,” he said.

Reduce Acres

For 2010, the concern is the downward trend in acres planted to hard red winter wheat (HRW). Overall, when comparing 2009 to 2010, 6 million acres fewer were planted to HRW wheat. As a partial breakdown of the total, Texas planted 1 million fewer acres of wheat; Oklahoma planted 500,000 fewer acres; and Kansas planted 700,000 fewer acres. Montana and South Dakota combined saw a decrease of 1 million acres in wheat.

In Kansas, for example, nearly 14 million acres of wheat were planted in 1980; in 1990, wheat plantings dropped to 12 million acres; and in 2000 plantings dropped to 10 million acres. For 2009-10, wheat plantings declined again to approximately 8.5 million acres. “In short, the continuing decline in acres planted to wheat is very real.”

“It’s difficult to peg an exact reason for these reductions,” explained Gilpin, “but it’s not price, because last fall, the Kansas City futures price for wheat was $5.50 per bushel.”

With a very cool, wet summer and fall last year, Gilpin said that the late harvesting of corn and soybeans narrowed the window of opportunity for producers to plant wheat in a timely fashion, especially in Oklahoma, Kansas, and Colorado.

“This situation may have prevented at least 1 million acres of wheat from being planted,” he said. “Despite acreage reductions, however, the above-average yields and good growing conditions during the past two years in other key wheat producing states have helped to curb shortfalls in supply.”

HRW Quality

Although wheat crop acreage was down in Texas and Oklahoma last year, along with a drought and late freeze, in 2010, Texas is expected to harvest approximately 125 million bushels (average yield of 35 bushels/acre). Good test weights are being reported but with low average protein levels of 11.5%, compared to the 10-year average of more than 12%.

“This situation already started putting pressure on the marketplace in late May and early June,” Gilpin said. “Presently, approximately 78% of the crop in Texas and Oklahoma is reported to be in good-to-excellent condition, compared to 43% for the same period last year.”

Last year, Oklahoma’s wheat harvest topped 66 million bushels; this year Oklahoma is expected to harvest 129 million bushels (average yield of 33 bushels/acre), with good test weights but low protein levels. “Dockage, however, has been slightly higher than normal,” added Gilpin.

In California, approximately 380,000 acres of hard white and hard red wheat are in production, compared to 315,000 acres planted in 2009. Overall, the wheat crop is pretty uniform due to irrigation. This year, the crop got off to a slow start due to cool, wet conditions; however, despite this, the test weights for red and white wheat are above average, but protein levels continue to be spotty and lower.

“During the past 15 years, wheat quality has increased in California, and the crop is becoming more of a stand-alone, compared to being used just for blending,” explained Gilpin. If all wheat varieties are included, California produced about 26.25 million bushels this year.

Colorado is just wrapping up its wheat harvest, with about 85% being finished as of July 26. The harvest is expected to reach 92 million bushels, but it may go up slightly due to better-than-anticipated yields. But protein levels are expected to remain in the 11% range, similar to 2009.

The Kansas wheat harvest is expected to hit 369 million bushels, with an average 45 bushels/acre yield, but the eastern and south-central areas of the state are projecting lower-than-normal yields due to dry conditions and some rust problems. Western and central Kansas areas, however, are projecting yields to reach or top the state average.

Protein levels are projected to be good, ranging from 11.7% to 12.5%—more than 75% of the state’s crop is falling within this range. “It appears to be one of the best wheat crops in terms of test weights,” Gilpin said. “More than 75% of the crop has a test weight of 60 lbs./bushels or higher. Early on, the crop also exhibited good milling and baking characteristics.”

In Nebraska, HRW production is projected to reach 70 million bushels in 2010 but with low protein levels, making it the second year in a row in which this has occurred.

In Wyoming and South Dakota, reports indicated that the wheat crops are in good condition. “I expect better-than-average yields and quality in these two states,” added Gilpin.

HRS Quality

In hard red spring (HRS) wheat, 2009 was a good year due to high yields and good test weights; however, protein levels were low, according to Gilpin. With 11.5% to 12% protein levels, the marketplace discounted the HRS wheat by as much as $1.5-2 per bushel. Consequently, the low protein HRS wheat was sold and moved into other areas.

“With 2010 harvesting now starting to ramp up, higher yields are being projected, but lower protein levels may again be an issue,” explained Gilpin. “So far, there are minimal concerns over quality, especially with vomitoxin issues, but if protein levels remain low this may displace HRW in some areas of the United States.”

SRW Quality

According to Gilpin, the soft wheat (SRW) crop really took it on the chin this year, with overall plantings down by 30%.

“This may have been due largely to the marketplace’s need for 5 million more acres of corn by next year,” he said. “From a wheat perspective, I think the soft red wheat and hard red wheat acres are at the most risk.”

According to Gilpin, this year will be a challenge due to lower production in Ohio, Missouri, and Arkansas. This marks the second year in a row of low production in these three states. Illinois SRW production also dropped significantly from 46 million bushels in 2009 to 17.5 million bushels this year.

In Ohio, SRW production is projected at 50 million bushels in 2010 compared to 70 million bushels last year.

In white winter wheat, harvesting has been getting underway in Idaho and Michigan, with this year’s production expected to be similar to 2009 levels in both states.

Factors on Price

“In going forward, it also will be very important to keep an eye on the stocks-to-use ratio figures, which includes domestic usage and exports,” Gilpin explained. “Presently, this ratio for all wheat is at nearly 50%─a level not seen in a very long time. The potential spring wheat stocks-to-use ratio for HRS wheat is hovering around 66%.” The stocks-to-use ratio indicates the level of ending stocks or carryover as a percentage of the total demand or use.

But weather problems in other major wheat production areas worldwide can change that picture quickly, according to Gilpin. “China also is importing more corn and soybeans, and the market will be watching to see if it steps up imports of wheat,” he added. “Plus, there also are reports that Canada may reduce future wheat plantings by as much as 6 to 10 million acres.”

U.S. wheat export sales have been climbing, and wheat prices also have jumped 49%, increasing by as much as $1.50 per bushel since the end of June. September 2010 wheat futures have gotten as high as $7 per bushel on the Kansas City Board of Trade.

Despite the large wheat carryover in the United States, wheat prices also are likely to remain firm, since usage will outpace production globally for the first time since three years ago, according to Gilpin.

“Presently, it’s a buyer’s market, and grain buyers have an opportunity to buy at basis levels not seen in more than 30 years,” Gilpin added. “This situation will put pressure on millers to maximize storage, which is going to be a big issue, and capitalize on blending opportunities.”

For more information, call IAOM at 913-338-3377.

See Related Websites/Articles:

• http://www.plainsgrains.org/

more MILLING NEWS...