June 14, 2018 / 5:01 AM / in 4 months

U.S. grain buyers grab for high-protein wheat, boosting cash prices

CHICAGO, June 14 (Reuters) - Cash prices for hard red winter (HRW) wheat in the southern U.S. Plains are surging as buyers scramble to lock up supplies of high-protein wheat from what could be the second-smallest crop in decades, traders said.

Amid a global shortage of high-protein wheat, commercial grain handlers need the new-crop grain to blend into their stocks to salvage the lower-quality wheat left in their bins from last year.

The race to own new-crop HRW wheat marks one of the few bright spots in the U.S. farm sector at a time when uncertainty over domestic trade relations with China, Mexico, Canada and other top markets has threatened export business and roiled commodity futures.

But this year’s U.S. crop will not stretch far. The U.S. Department of Agriculture this week estimated the HRW wheat harvest at 650 million bushels, the second-smallest since 1964, following reduced plantings and months of drought that slashed yields.

“It’s going to be a lean year for both farmers and grain handlers in Oklahoma,” Kim Anderson, an Oklahoma State University extension grain marketing specialist, said on Tuesday.

HUNGER FOR PROTEIN Hard red winter wheat, grown in the Southern Plains and milled into flour for bread, is the biggest U.S. wheat class, typically representing about 40 percent of total U.S. wheat production.

Protein is one indication of the wheat’s milling quality. Wheat with a protein content of 12.0 percent or more tends to command a higher price.

The firm cash market reflects buyers’ hunger for high-protein wheat after two consecutive low-protein harvests that averaged 11.5 percent or less. Flour millers and exporters largely spurned the 2016 and 2017 HRW wheat harvests, seeking alternate supplies from outside of Texas, Oklahoma and Kansas.

As a result, commercial grain elevators in those states now are loaded with old-crop wheat that will not sell, said Frank Stone, president of Kansas City Trading Group, a brokerage.

“Most of these elevators, they want to buy some protein to blend up (with old-crop wheat) and make a marketable product,” Stone said on Tuesday.

Early returns from the 2018 harvest have been encouraging. Protein levels in HRW wheat samples from Oklahoma and southern Kansas have averaged 13 percent, according to weekly data from Plains Grains Inc, a trade group that conducts a wheat quality survey, and the Kansas Wheat Commission.

So millers and grain handlers are seizing the moment and paying up for wheat. At some country grain elevators, basis bids - the difference between K.C. HRW wheat futures and local cash prices paid to farmers - are the highest in years.

At Wichita, Kansas, a delivery point for K.C. wheat futures , the basis WHRWBRGWIC-C1 this week reached 15 cents over K.C. July futures, its first positive value since 2015 and the strongest local basis since July 2014, according to Eikon data.

K.C. July wheat futures closed Wednesday at $5.39 a bushel, making the cash price paid to farmers at Wichita $5.54. A year ago, the local basis was 55 cents under futures, which were trading near $4.50 - pressing the cash price near $4, barely enough for some growers to break even. (Reporting by Julie Ingwersen in Chicago Editing by P.J. Huffstutter and Matthew Lewis)

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