Minneapolis wheat
Minneapolis wheat futures rallied to a 2½-year high.

KANSAS CITY — Minneapolis wheat futures rallied to a 2½-year high last week after the U.S. Department of Agriculture’s June 11 spring wheat condition ratings came in well below trade expectations. With indications of a second consecutive low-protein hard red winter crop, eyes increasingly were on spring wheat as the major source of protein for milling wheat.

The U.S.D.A. in its weekly Crop Progress report rated spring wheat in the six major states as of June 11 at 45% good to excellent, down 10 percentage points from a week earlier and 34 points below 79% at the same time last year. Only 43% of the crop was rated good to excellent in top-producing North Dakota (52% a week earlier) with good-to-excellent ratings even lower in South Dakota at 13% and in Montana at 23%.

Minneapolis spring wheat futures surged on June 13 after the U.S.D.A. ratings were released the previous afternoon, posting a 2½-year high on a continuous nearby contract basis with the July 2017 contract hitting $6.33¼ a bu. The Minneapolis July contract closed at $6.28 a bu on July 13, at a $1.71 premium to the Kansas City July future at $4.57 a bu. A more typical spread between the two markets is about 50c a bu.

In a crop progress update issued June 13, the North Dakota Wheat Commission said, “Rain was received across the region in the past 24 hours, with central and eastern parts of the region benefitting the most. The rains are certainly welcome, and should help stabilize crop ratings where totals reached notable levels, but most areas of the region received less-than-predicted levels of rain with the more critically dry western half of the region especially falling short of needed relief. The next couple of days have continued chances for precipitation, but extended forecasts call for a shift back to warmer and drier conditions.

“Portions of the 2017 crop will not be harvested due to the extended dry conditions, disappointing recent trends in rainfall, and a sharp increase in the value of wheat for hay due to quickly deteriorating pasture and hay crops in the most drought-stressed parts of the region,” the commission said. “More frequent rains and a much broader coverage of precipitation is needed for the U.S. spring wheat region.”

Some analysts suggested the lower ratings as of June 11 may result in yield losses of at least 3 bus per acre from earlier expectations. The U.S.D.A. will issue its first survey-based other-spring wheat crop forecasts, including projected yields, in its July Crop Production report, which will be issued on July 12.

The concern for protein reflected in the widening spread between Minneapolis and Kansas City wheat futures also was evident as spring wheat and hard red winter wheat cash basis levels advanced even as wheat futures moved higher. The cash basis on 14%-protein wheat in Minneapolis on June 13 jumped 50c a bu to 100@150c over the Minneapolis July future, equal to a cash wheat price of $7.28 to $7.78 a bu. The spot spring standard patent flour price as calculated by Milling & Baking News surged $1.70 a cwt on the same day.

Advances in the Kansas City cash wheat basis were even more dramatic.  The cash basis on 12%-protein hard red winter wheat at 168@178c over the K.C. July on June 14 was 38c higher than a week earlier and 68c higher than at the end of May.

Joe Christopher, Crossroads Commodities, Sidney, Neb., said, “We haven’t found enough protein to cool these premiums. The northern Plains will continue to be the weather focus, with spring wheat protein becoming more important as (hard red winter wheat) harvest progresses. Minneapolis will remain the leader.”