Hard winter wheat basis at historic levels

by Jay Sjerven
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KANSAS CITY — Premiums on hard red winter wheat in Kansas City this autumn reached the highest levels for the season in records extending back to 2000; indeed, at 176c over the Kansas City March wheat future, the basis on 12%-protein hard red winter wheat may be record high for the month of November. (In February 2008, when hard red winter wheat and all-wheat stocks were declining to the lowest levels since shortly after World War II, the basis on 12%-protein hard red winter wheat was quoted up to 240c over the K.C. March future even as that contract traded around $11.40 a bu on the Kansas City Board of Trade.)

Grain merchants pointed to the poor performance of railroads, particularly the Burlington Northern Santa Fe, and high rail car values confronting those who, for whatever reason, failed to order adequate freight ahead, as principal supports to spot wheat basis. The Union Pacific was said to have less congestion than the B.N.S.F. and lower car values, but it faced increased demand partly as a result of the latter railroad’s problems. Some mills’ pipelines were wearing thin with wheat shipments for application against contracts often delayed.

Railroads were engaged in strong export programs, particularly for soybeans, and the corn crop across parts of the hard winter wheat belt was very large, which also made demands on rail and truck transport. Especially troublesome bottlenecks included some B.N.S.F. corridors across the northern Plains, where significant capital improvements were under way.

Farmer selling of hard red winter wheat recently has been light, but during the October rally in wheat futures, producers did liquidate a significant volume, but this has not been passed on to end users. Wheat futures prices traded lower since mid-October with several contracts setting new season’s lows, which required the cash basis to bear a greater burden in originating wheat.

The hard red winter wheat cash basis also derived support from tightening stocks. The U.S. Department of Agriculture on Nov. 8 forecast the carryover of hard red winter wheat on June 1, 2014, at 194 million bus, down 149 million bus, or 43%, from 343 million bus in 2013. It would be the third consecutive year the hard winter wheat carryover has declined since 386 million bus in 2011. The 2014 carryover would be the smallest since 138 million bus in 2008 and would compare with the recent five-year average carryover of 337 million bus. The hard red winter wheat 2013-14 ending stocks-to-use ratio was forecast at 21.5% compared with 34.6% in 2012-13.
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