Sifting Soft Wheat From Hard
Currently, global wheat stocks sit at a record 287.8 million tonnes, bolstered primarily by increased efficiency and fertilizer use in Russia and Ukraine. Other wheat-producing countries, like India, are set to produce bumper crops this year as well. However, not all wheat is created equally, and while global wheat stocks are high, stocks of wheat vary widely by variety and quality.
Winter wheat is sown in the fall and sits dormant during the winter until it is harvested over the summer. So-called spring wheat is sown in the spring and harvested during the fall. Wheats are further broken out into hard and soft wheat classifications. The term “hard” is used to describe high protein varieties with strong gluten; “soft” wheat describes low protein-containing wheat with less gluten strength.
There are a few major classes of wheat grown in the United States, including hard red winter (HRW), hard red spring (HRS), soft white, and durum. The soft wheats are typically used in the production of cookies, crackers, and pastries, whereas hard wheats are used in breads and cereals. Durum, the hardest and highest protein wheat variety, is used in the production of pastas.
Three countries provide the bulk of the world’s high protein, hard wheat—the US, Canada, and Australia. As Australia’s drought enters its third year, that country’s production has suffered, putting the onus on North America to provide the bulk of high protein wheat supplies. This past spring, wet fields impeded wheat planting in parts of the US and Canada, retarding crop progress from the outset. Now, cool, wet weather is delaying harvest of hard spring and durum wheat varieties, and compromising wheat quality.
The chart above shows the breakdown of different wheat varieties produced in the US on an annual basis.
In North Dakota, 99% of hard red spring wheat has headed, which means the part of the plant that houses the grain, the spike, has emerged. However, only 89% has been harvested, which is 9 percentage points behind the five-year average for this time of year. Current forecasts from the National Oceanic and Atmospheric Administration’s Global Forecast System (GFS) are calling for more cool and wet conditions in North Dakota and Montana, where most of the wheat has headed, but more than 15% still sits out in the fields.
Approximately 71% of the US durum crop has been harvested as of the end of September. Most US durum wheat production is concentrated in northwest North Dakota, but that state has just 79% of its crop harvested, compared with 64% in Montana and 100% in South Dakota.
Spring wheat has also lagged in Canada. Harvest was only 13% complete in Saskatchewan at the end of September compared to 50% the year prior. Alberta has also struggled to keep pace, pulling in only 15% of the crop compared to 31% during the same period last year. Canada spring wheat quality has reportedly taken a hit, already being even further behind than the US crop.
The maps above shows the area planted to durum wheat (left) and hard red spring wheat (right) in North Dakota, South Dakota, Montana, and Minnesota.
Late season rains generally aren’t a problem for yield. Late rains in fact can encourage extended grain-filling periods, which typically translates to larger grains and higher yields. But the excess moisture, coming at a time when the plant should be drying out, tends to dilute protein concentrations. Hard wheat varieties that test below 12%-13% protein will typically be rejected by millers because the flour produced is too low quality to be used for bread. A protein deficit can often be closed by blending high protein wheat flour into low protein flour to create more “all-purpose wheat flour”, which has an improved texture for breadmaking and other wheat-derived products. But if there is a shortage of high protein wheat, farmers and millers are in a pinch. Hard red wheat that is low in protein also can’t be shifted to pastry use because of its more bitter taste. Instead, hard red wheat, once rejected for bread and pasta use, is used for animal feed, which results in higher prices for hard wheat varieties and lower feed wheat prices. Despite ongoing apprehension, kernel protein concentrations for hard red spring wheat so far sit at 14.5% across the US, according to US Wheat Associates, a relatively average number for the season.
Another quality measure of wheat, called falling numbers (FN), has been a concern this season. Falling numbers is a test that helps identify the structural integrity of the starch chains. An FN value lower than 300 will be rejected by bakers because it forms a sticky, low-quality dough. The latest crop report from US Wheat Associates pegs this season’s average FN value for hard red spring wheat in North Dakota at 379, down from 414 in 2018. At this point, what puts the wheat still standing in jeopardy are forecasts of more cool, wet weather that could promote vomitoxins or prevent some areas from being harvested at all. Importantly, some industry sources have reported recently that certain measures of quality, such as falling numbers, may be lower than currently reflected in the survey data.
Cool, wet weather in the northern US and Canada has impeded harvest of spring wheats and poses a threat to the quality of wheat grown in those areas. The map on the left shows the average precipitation quantity in North Dakota and Montana at the county level. The map on the right shows the average temperature at the county level. Click on the image to go to an interactive display on the Gro web app.
Export prices of dark northern spring (DNS) wheat and Canada Western Red Spring (CWRS) wheat have risen sharply, jumping 27% and 15.5% respectively since the beginning of September, and are continuing to rise. Hard red spring wheat futures, tracked on the Minneapolis Grain Exchange (MGEX), jumped 47.75 cents over the month of September. Portland basis levels of DNS wheat at 14% protein also surged 45 cents to 120 cents per bushel over the nearest contract during September. All of these movements indicate a relative paucity of available high-protein wheat and a bearish outlook on the crop being harvested.
Over 50% of the US hard red spring wheat and durum crops are exported annually. Of that, roughly 75% is shipped mainly to Asian countries as well as the EU. So far, cumulative exports of hard red spring wheat have been comparable to previous years, but if the crop is downgraded significantly, exports may be cut as more wheat is allocated to feed use.
The chart above shows the average basis prices for dark northern spring wheat at Portland, Oregon, export terminals. Since the beginning of September, prices have surged 45 cents per bushel.
As the spring and durum wheat harvests draw to a close, questions remain surrounding the overall quality of the grain. Final reports should trickle out over the next few weeks that will be indicative of what the market can expect. But with harvests delayed, and portions of the wheat crop still sitting in the fields, it’s still too early to tell how extensive the damage is.
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