High Basis and Low Protein Causing Concerns in HRW States

June 11, 2010 Bookmark and Share

NAWG and U.S. Wheat Associates (USW) responded this week to growing concerns about extremely high basis levels producers are facing in hard red winter wheat states.

There were reports at the beginning of the week of basis levels – which include discounts and transportation charges taken at the elevator – being so high that cash prices received by farmers were up to $2 under the Kansas City Board of Trade futures price. For producers who don’t have storage available to them, or who are in need of cash as harvest wraps up, those levels dramatically reduce the value of an otherwise decent crop.

Industry observers largely agree that the basis challenges are being caused by large stocks of low-protein wheat from last year’s crop and concerns about protein levels in the new crop, combined with international buyers waiting to see what happens with U.S. port prices and quality; a lack of available storage space throughout the exporting industry; and preexisting convergence problems.

Weather and nitrogen availability affect the protein level of wheat grain. So far, only 21 samples of hard red winter from Texas and Oklahoma have been tested and the average protein level is 11.5 percent. With the large stocks, buyers are hoping protein levels will increase as the combines roll north. Lower protein hard red winter has many potential uses, such as for blending with wheat from other classes and making baguettes or flat breads.

In Kansas City this week for other meetings, NAWG Chief Executive Officer Dana Peterson met with Kansas City Board of Trade President Jeff Borchardt and Louis Dreyfus Vice President Steve Campbell to discuss the market situation and express grower concerns.

NAWG policy staff members have also been in contact with agriculture leadership and staff on Capitol Hill to educate them about the developing issue, though few policy options exist to immediately address this type of situation.

USW, the industry’s export market development organization, has taken a number of steps to demonstrate the value of U.S. wheat and get sales on the books, which would ease the back-up of low-protein wheat throughout the system.

In addition to continuing general educational programs about the value of U.S. hard red winter wheat, USW staff members overseas have been engaging customers to determine markets that might benefit from purchasing stocks at this time. USW is also taking advantage of several opportunities to be face-to-face with customers over the next few weeks.

Both organizations will continue to work with state associations and others to monitor and provide information about the situation as the harvest season continues.

In the meantime, extensive information about crop quality is available from USW harvest reports, accessible at http://www.uswheat.org/reports/harvest, and from Plains Grains, Inc. at http://www.plainsgrains.org/.