Posted by: usset001 | September 27, 2010

Portland soft wheat prices are lagging

Last week I received a request for a price forecast, for Portland soft white wheat at harvest in August 2011. I thought I would post the question and my response, as it speaks to changing spread relationships in the wheat market – changes that I have a difficult time explaining.

Question: We are soft white wheat producers in Oregon.  I would like to know your forecast for a Portland soft wheat price at harvest (August 2011), as I am determining our level of insurance coverage now.  USDA shows $4.95 to $5.70.  What do you think? 

Response: My crystal ball is very cloudy – maybe I should clean the darn thing. Here is how I would go about “predicting” a new crop value for SWW in Portland. I start with Chicago Sep’11 soft red wheat futures, which are currently trading (September 24) at about $7.50 per bushel (wow!). Now I adjust back for SWW values. For many years (1990-2005, see table below), we could expect the value of SWW in Portland to trade at a premium to the Chicago Sep contract in early August, anywhere from 10-90 cents per bushel. No more – since 2006, Portland white wheat values generally trade less than Chicago Sep wheat prices. This year the Portland “discount” was 103 cents on August 2 – the largest I have on record for harvest time.

So here is my prediction, based on Chicago Sep’11 futures as of September 24, 2010

     $7.50   Chicago Sep’11 futures (warning! This figure can and will change)

     -0.80    assumed Portland discount next August (let’s hope it’s less – maybe even an “over”)

     $6.70   Portland soft wheat value next August

You have to adjust your farm values as they relate to the Portland market (50-60 cents less?).

I hope this is helpful. Some day we can hope to get Portland values back up over Chicago where they belong. Good luck!

This is a rich topic and I can’t help but add a few more thoughts. Soft white and soft red wheats have two distinct differences and much in common. Their differences include where they are grown – soft red wheat in the eastern corn belt and southeast U.S. and soft white in the Pacific Northwest with a smattering in Michigan – and the color of the bran. In terms of wheat “quality,” soft white and soft red wheats have two much in common. Both are low protein wheats used in the domestic market for the production of flours used to make cakes, pastries and cookies. Millers and bakers can get pretty parochial about their flour, each claiming the superiority of their products that use soft red or white flour. But I’ve never met a consumer who claimed that the cookie or cake consumed in Seattle (most likely made from a soft white wheat flour) was superior to the cookie or cake consumed in Boston (most likely made from a soft red wheat flour).

This year, about 60% of the soft white wheat crop grown in the Pacific Northwest will be exported to Asian countries, much of it through export elevators in Portland, OR. About 25% of the soft red wheat crop will be exported, and I suspect that very little of the exported wheat will make its way through Chicago. Sometimes the matrix of export prices and transportation costs are difficult to decipher, but it seems natural that the price of soft wheat in Portland (an important point for exports) should be higher than the soft wheat price in Chicago, an almost irrelevant location for the domestic or export handling of wheat. That’s not the way it is. This is just one more mystery for the strange workings of the wheat futures market in Chicago.

Portland Soft White Wheat Prices vs. Chicago September Futures on August 1 (harvest) in cents per bushel, 1990-2010

Year 1-Aug
1990 45
1991 43
1992 86
1993 34
1994 14
1995 22
1996 30
1997 45
1998 12
1999 39
2000 13
2001 76
2002 55
2003 11
2004 75
2005 30
2006 (3)
2007 4
2008 31
2009 (23)
2010 (103)

Responses

  1. […] Portland soft wheat prices are lagging В« Ed's World : Grain Marketing Sep 27, 2010 … $6.70 Portland soft wheat value next August … Early calls and opening grain markets … […]


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