Wheat price spreads – anomaly or new normal?

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Source: Alberta Agriculture and Forestry

Provincial crop analyst Neil Blue looks at the 3 major wheat futures markets in the U.S. and what they mean for Canadian prices.

The Minneapolis Grain Exchange (MGE) has traded Hard Red Spring wheat futures for more than a century. The prices from MGE are used as reference for contracting prices of Canadian Hard Red Spring wheat. The Kansas City Board of Trade, purchased by the CME group in 2012, trades Hard Red Winter wheat futures. The Kansas City futures are used as the reference for pricing Canada Prairie Spring wheats and Hard Red Winter wheat. The Chicago wheat futures trades Soft Red Winter wheat futures and used for pricing Canadian soft wheats.

‘Typically, Hard Red Spring wheat is the most valuable because of its superior bread making qualities, including the relatively high protein level,’ explains Blue. ‘Usually, the price of Hard Red Spring wheat futures is highest of the 3, followed by Kansas City Hard Red Winter wheat and Chicago wheat.’

Blue notes that relationship has reversed during the past several months.

‘During 2019, the Chicago wheat futures moved significantly higher than Kansas City wheat futures and, in the last few months, has moved higher than the Minneapolis wheat futures. The following weekly futures chart shows futures prices for those 3 wheat types and the price anomaly that developed where Chicago wheat is highest priced of the 3.’

Figure 1

Graph of wheat futures

Prices are driven by supply and demand factors. Blue says that recent projections vary for the 3 U.S. futures markets when looking at each class of wheat on the comparative end of year stocks and the stocks to use ratio – end of year stocks divided by that year’s total usage.

‘Stocks of Hard Red Spring wheat at Minneapolis are increasing. Stocks of Hard Red Winter wheat at Kansas City are decreasing, and in Chicago, Soft Red Winter wheat stocks are projected to be similar after last year’s drop. From the U.S. perspective only, one could interpret that the Hard Red Winter wheat price has comparatively the best reason to increase during this crop year relative to the other wheats.’

He says that the weekly Commodity Futures Trading Commission report of October 30, 2020 shows speculators as being long, or net buy positions, 48,000 contracts of Chicago wheat, 41,000 contracts of Kansas City wheat and only 9,000 contracts of Minneapolis wheat.

‘The speculative influence can sometimes keep a market in a relative position longer than the fundamental numbers would suggest,’ he explains. ‘Market analysts will be watching the relative wheat prices as the crop year progresses. Influences include weather on the growing wheat crops across the world, new wheat supply from Australia and Argentina, and wheat demand, currently accelerated by the drive for food security in the face of COVID-19.’

Contact

Connect with Neil Blue:

Hours: 8:15 am to 4:30 pm (open Monday to Friday, closed statutory holidays)
Phone: 780-422-4053
Toll free: 310-0000 before the phone number (in Alberta)
Email: neil.blue@gov.ab.ca

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