Hard winter wheat premiums hit a road bump last week that interrupted at least temporarily a torrid tear upward that prevailed since Russia implemented its ban on grain exports Aug. 15. Last week’s declines in the Kansas City wheat basis were seen as a lull, and most expected basis levels to resume their upward trajectory as the fall crop harvest expands in the nation’s grain belts and wheat must compete ever more assertively for freight.
Before last week’s dip in the Kansas City wheat basis, premiums on 12%-protein hard red winter wheat surged 85c a bu in the space of only a couple of weeks. The cash basis had been trading at historically low levels for an extended period even as wheat futures prices raged higher from mid-June and surged to over $8 a bu on all three exchanges for the first time in two years when Russia announced its grain export ban. Futures prices since have fallen from those nosebleed levels but remained about $2 a bu higher than a year ago.
The run-up in the cash wheat market was ignited later, once the perception of tightening world wheat supplies and ideas world demand for U.S. wheat might increase, features reflected in rallying U.S. and world wheat futures prices, turned into the reality of increased purchases of U.S. wheat.
“The Russian grain export ban required a reallocation of world freight,” said Bart Brummer, senior wheat merchandiser, The Scoular Grain Co., Indianola, Iowa. “Demand for freight increased within the United States as well as the market adjusted to a prospective large increase in foreign demand for U.S. wheat.”
Mr. Brummer noted rail car rental rates in the secondary market surged from $200 discounts per rail car to premiums as high as $1,500 per car in recent weeks as buyers of U.S. wheat, including exporters, decided they had to move quickly to buy physical supply to accommodate demand. Exporters’ first call was to the terminal elevator for quotes, and the terminal elevators’ first call was to inquire about rail cars, Mr. Brummer said. Elevators raised their offer levels in jumps of 20c to 30c a bu to match the rapidly escalating rail car values. Users, some in a panic, had to pay the higher price. Advancing freight rates and more urgent demand, Mr. Brummer said, were the principal features
propelling the cash hard winter wheat basis so much higher so quickly.
Mr. Brummer said the period between the end of the wheat harvest and the expansion of the fall crop harvest in the grain belts typically sees cash wheat basis levels rise as the country’s attention shifts from handling wheat to handling corn, soybeans and other fall crops, and he noted the fall crop harvest may expand earlier this year than in most. This seasonal trend should combine with the more active U.S. export program to keep the cash hard winter wheat basis strong and even on the rise, he suggested.