Grain trade trends
Experts converge on Crop Outlook and International Durum ForumBy WHITNEY PANDIL-EATON, Staff Writer wpandileaton@minotdailynews.com
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It was numbers, numbers, numbers and more numbers as more than a dozen experts representing different agricultural sectors converged Tuesday in Minot at the Crop Outlook and International Durum Forum in an attempt to explain the current global financial situation and its impact on the ag industry.
Sponsored by the North Dakota Wheat Commission and U.S. Durum Growers Association, the event focused on global topics such as the world and U.S. wheat supply and price outlook, and how the current financial situation has and will potentially affect grain trade, as well as regional and national topics such as a market analysis of the end-use of the 2009 crop, current research and breeding projects, trends in wheat products, marketing and transportation and what might be ahead in 2010 in terms of production and weather.
Split into a two-part event, the morning session - Crop Outlook - focused on the 2009 crop quality reports and research projects currently being conducted at North Dakota State University as well as how the current global financial situation could impact ag commodity prices and marketing.
Erica Olson, marketing specialist for NDWC, opened the session by providing details on the recently completed Regional Durum Quality Report.
There was much to celebrate for durum farmers as the cooler than normal growing season and adequate subsoil moisture conditions provided optimal conditions across much of the state, resulting in record-tying yields, while the greater northern growing region produced 78.9 million bushels, nearly double the production of 2008.
Of the nearly 79 million bushel-crop, 70 percent was rated No. 1 Hard Amber Durum, up from 43 percent last year, meaning that the crop had good overall physical characteristics, milling performance and semolina mixing properties.
Olson attributed the overall quality increase to the change in seed preference by producers.
"The biggest change we've seen this year has been the shift in varieties. Whereas Mountrail and Lebsock dominated for years, now Divide is the No. 1 planted in North Dakota and we're seeing big strides by Alkabo, Pierce and Grenora," she said. "I think it has been this varietal shift which has improved the end-use of the product."
While the cool growing season was a positive for yields, it was detrimental to protein levels.
The average protein level of the 2009 crop was 13.5 percent, down nearly 1 percent from the five-year average, although 63 percent met or exceeded the industry minimum of 13 percent protein. Although not as substantial, vitreous kernel count was also slightly below the five-year average.
The news was not so rosy for the 2009 hard red spring wheat crop.
Although this crop, too, had record yields in North Dakota and was graded No. 1, the lower than average protein level - a major selling point for spring wheat - was 13.1 percent, more than one percent below the industry standard. Only one-third of the 2009 crop is above 14 percent protein compared to more than 60 percent in 2008. Further complicating the overall picture is the fact that its winter counterpart also experienced lower than average protein levels, which has helped to flood the market of low protein wheat.
The physical condition of the crop - lack of disease, good test weight and kernel size - were all positive, but tests conducted on milling performance and dough quality were scattered across the board, which is a concern to both the producer and end-user.
"It's going to be a challenge this year because the crop doesn't have the normal protein levels, which means lower loaf volume and poorer dough strength," said Jim Peterson, marketing director for NDWC. "And it's going to be a challenge to find strength in the crop. Hard red spring wheat is used for strength, so it's going to be hard to find the right mix."
Quality-sensitive markets like Japan will pay a premium for the higher protein crop, he said, but producers with wheat below 13 percent will have to focus their marketing efforts on price-sensitive, non-traditional buyers.
Buyers of another kind individual consumers was the topic of Frank Manthey and Senay Simsek, both wheat quality specialists at NDSU, as each discussed the changing of consumer preference and its impact on breeding and quality research.
Although traditional Semolina-based pasta products remain the most popular, Manthey said several consumer initiated shifts are occurring simultaneously in the industry. While some consumers are after more "quick and easy box meal" options, others are concerned about the nutritional content of their pasta, opting more for whole-grain and high-fiber products while others still are increasingly interested in specialty products like gluten-free pasta.
As the combines make their final passes in the field and the 2009 harvest season officially ends, many producers are now contemplating the marketing approach for the current bumper crop as well as what to expect in the 2010 crop year and beyond.
Dan Manternach, editor of Doane's Ag Report, discussed what the numerous projection reports global carryover stocks, exporter and importer stocks, stocks to use ratios mean to farmers and the impact it has on prices, especially amid changes revealed Tuesday by the USDA concerning U.S. carryover stocks, production and demand.
Aside from the downward price pressure as a result of lower protein wheat, Manternach said current prices are low because of global competition and high carryover stocks in the U.S.
"Right now we are experiencing the lowest export sales pace in 25 years," he said, "which is due to more competition from Ukraine and Russia, and the increasing value of the dollar."
Beyond the current situation, many farmers who attended Tuesday's event were hoping to get an understanding of the factors behind the volatility of the last few years and to see if the trend will continue into the future.
Concerning the boom and bust cycle of the last two years, Manternach said the U.S. and the rest of the world has entered a new era in agriculture where, "$4 wheat now is the old era $2.50 wheat."
While he doesn't expect market prices to reach $13 per bushel again, Manternach said a new range in prices will develop over the next 5 to 10 years with lows of $4 and highs of up to $10 per bushel.
The reason behind the "new era" in ag is the combination of several factors from historically high input costs of fertilizer, fuel and land prices worldwide to the fact that many former Third World countries are now economically developed and are able to purchase better-quality food.
Another factor behind the new age of ag has been the introduction of new players into the market in recent years.
These "players" Manternach explained, are trading funds - the equivalent of a mutual fund for commodities - which intermixes commodities such as gold, cotton, silver and wheat.
"These funds hold 70 percent interest in the future markets," he said. "If you want to dance with the elephants you better know their dance moves."
Within this new realm there are two distinct sects long and short-term trading funds and index funds, which base the index of commodities against the fear of inflation. Manternach explained that these new funds are hedging against inflation and are getting around speculative position limits, which caused erratic prices in the future market. Recently, however, efforts have been made that will force them to adhere to the new regulations beginning with the July 2010 contracts.
While these and other factors may result in a wider array of price risk for buyers and producers, Manternach said he expects producers to see higher wheat prices in both the short-term and long-term due to a drop in wheat acres in the U.S. in 2010, stable demand and a drop in global carryover stocks starting in 2011.
