Hopes for high quality wheat demand support price

02.08.2016

Forecasts of good harvests have been depressing wheat markets, but the uncertainty of the quality of European wheat has led to expectations of higher overseas demand. This in turn has provided support for high-quality hard red winter wheat traded in Kansas.

After broadly trading at a discount to the broad market benchmark in Chicago since July last year, September hard red winter wheat at the Kansas City Board of Trade was trading at parity, at $4.07¼ a bushel.

KCBT wheat was trading at a 34 cent a bushel discount to Chicago in June, but the price difference has disappeared as concerns have mounted over the quality of Europe’s wheat harvest after heavy rains hit the continent earlier this year.

“Hard red winter wheat has a huge harvest, but people are hoping that quality issues will provide a little market demand,” said Matt Ammermann at brokers INTL FCStone.

European production volumes are forecast to decline and the poor quality means that most of the wheat will only be sold for feed.

France produced a record 41m tonnes of wheat last year, but analyst estimates for the country’s 2016 crop have been slashed from 40m in late May to about 30m tonnes. The problems extend east into Germany and Poland, according to traders.

The uncertainty about the quality has been supporting European wheat prices despite reports of good harvests in Ukraine and Russia. European milling wheat prices have only fallen 5 per cent since the start of the year to €169.50 a tonne compared to Chicago wheat, which has tumbled 13 per cent in the same period.

Analysts said that despite high production yields in the US, latest reports on quality have been variable. Protein levels suffered in areas because of heavy rains during the development in both the Midwest and the Great Plains.

“Wheat will be available this year, but finding high quality and high protein wheat will be more difficult,” said Jack Scoville at the Price Futures Group in Chicago.

US high protein wheat, ideal for bread, is normally traded at a premium to soft winter wheat in Chicago, which is used for cakes and pastries as well as animal feed. However, a poor harvest in soft winter wheat has reversed that trend over the past year.


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