Markets Still Value High-Quality Wheat: Can NGP States Capitalize in 2017?

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High quality, high protein wheat can make or break the budget for a northern U.S. grain producer. But, there are two major aspects that determine which scenario a farmer will face: how much are markets valuing quality and whether growers have the right production conditions to capitalize in these markets. So, it’s never too early to start watching how markets are valuing quality and what one can expect in terms of production.

When considering how markets are value, it’s useful to look at various measures such as the spread between spring wheat and winter wheat futures and the forward carry for the spring wheat futures contract, factors which we’ve discussed in past posts and podcast. Looking at current futures market data, there’s some evidence that markets continue to place high value on existing high-protein wheat (as we continue to operate in a deficit) and that high protein wheat will continue to be valued for the 2017 new crop.

So what about farmers’ ability to capitalize on this continued marketability of high-quality wheat? One of my favorite places to look when asked that question is the USDA Weekly Weather and Crop Bulletin, which not only provides a summary of the past week’s weather but also provides conditions across wheat production states for five categories: excellent, good, fair, poor, and very poor. While certainly not a perfect predictor, these condition reports do provide at least a signal to markets of the potential supply of higher-quality grain in the upcoming marketing year.

The table below shows the proportion of surveyed winter wheat that falls into the excellent and good quality categories. As a quick reference, the states with red cells indicate a more than 10 percentage point decline in the proportion of excellent/good quality wheat since this time last year, yellow indicates a decrease or approximately the same quality level, and green is a quality increase.

1/31/16 1/1/17 1/29/17
Colorado 48 40 36
Kansas 55 44 44
Montana 72 58 70
Nebraska 56 46 47
North Dakota 65 83 82
Oklahoma 74 25 33
South Dakota 67 56 62
Texas 49 29

 

The data show that in the major winter wheat production states such as Kansas, Oklahoma, and Texas, wheat conditions are significantly lower than when surveyed at a similar time last year. If these conditions continue, it may result in a continuing deficit of high quality wheat in the 2017/18 marketing year.

However, Montana and North Dakota winter wheat producers may have a competitive marketing advantage, as 70% of Montana winter wheat and 82% of North Dakota wheat is currently rated as good or excellent quality. If this translates into high-quality wheat that can be marketed to supplement the poorer quality wheat produced in the central Plains, northern Great Plains producers could reap the benefits.

(Photo by marfis75 is licensed under CC BY 4.0)

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About Author

Dr. Anton Bekkerman is an associate professor in the Department of Agricultural Economics and Economics at Montana State University, joining the faculty in 2009 after completing his PhD at North Carolina State University. Bekkerman's primary areas of research are grain marketing, basis and price forecast modeling, understanding how grain prices are affected by changes in supply chain infrastructures and quality demands, and analyzing the economic trade-offs of adopting alternative dryland cropping systems in Montana. One of his current projects is an investigation of how new grain loading technologies are affecting prices that Montana farmers receive for their wheat. Bekkerman is also examining the economic impacts that Montana's rapidly expanding dry pulse industry will have on the state's crop industry. Although Bekkerman grew up on the east coast, he has recently made a small step toward production agricultural after acquiring three backyard chickens.

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