USDA crop forecast cut jolts US spring wheat market

A surprise cut in the government’s forecast for the 2016 spring wheat harvest in the United States has fanned concerns supplies will be tight this season, buoying prices for the top-quality grain and boosting its premium to lesser grades of wheat, reports Reuters.

The US Department of Agriculture (USDA) on Friday lowered its estimate of US spring wheat output, excluding durum, to 534 million bushels from 571 million previously. The average estimate among analysts surveyed by Reuters was for 570 million bushels.
Spring wheat futures on the Minneapolis Grain Exchange hit a one-month high at $5.21-1/4 per bushel after the report, before paring gains to settle at $5.14-1/2.
The premium for MGEX December over Chicago Board of Trade December wheat reached $1.22-1/2 per bushel, the highest in the life of the two contracts, before easing.
“The traders are worried about the availability of high-protein wheat,” said Terry Reilly, analyst with Futures International.
The lower US harvest comes as quality concerns loom elsewhere in the world, despite plentiful supplies of wheat overall.
“You’ll probably now see even higher demand for quality wheat because there have been some problems in Australia and there’s maybe too much rain up in Canada,” said Jack Scoville, analyst with the Price Group.
Heavy rains have damaged crops in eastern Australia, which produces that country’s high-protein wheat, while wet weather has also hurt crops in Canada and France. All three countries are major exporters of milling-quality wheat.
The top buyers of US spring wheat include the Philippines, Japan and Taiwan.
Protein is a key grading factor for wheat, and higher levels command a higher price. Among US wheat classes, hard red spring wheat generally has the highest protein aside from durum wheat, which is used for pasta.
This year’s harvest of hard red winter wheat, the biggest US wheat class, had lower-than-average protein content, a factor that adds to spring wheat’s value.
“If you’ve got protein wheat, you’ve got a chance to make some money, no matter what the futures are doing,” Scoville said.
The USDA’s tighter spring wheat estimate served as a rare bit of bullish news for the US wheat market. CBOT wheat hit its lowest level in a decade last month, while MGEX spring wheat set a six-year low in February.
“If there’s a bullish argument to be made, it’s in spring wheat and the Minneapolis contract because of strong demand and a smaller crop there,” said Brian Hoops, president of Midwest Market Solutions.The Financial Express.