Protein premiums for spring wheat in Western Canada may be returning, but larger production prospects will weigh on prices overall, according to analysts.
Last year, there was very little premium seen for higher-protein wheat and in recent years, a lot of higher-protein wheat was sold into mid-protein markets, said Jerry Klassen, manager of GAP Grains and Produits in Winnipeg.
But this year things should be different, he added.
“There’s a lot less (higher-protein wheat),” he said. “The average protein is probably a percent below the 10-year average.”
The premiums could continue to widen going forward if there are concerns about tight high-protein supplies. But it’s still too early to tell if that will be a concern because the harvest of wheat isn’t quite finished in Western Canada, said Jon Driedger, market analyst with FarmLink Marketing Solutions in Winnipeg.
Though premiums will return, farmers with high-protein wheat will probably still receive less than they would have for low-protein wheat in 2012 because of large global supply expectations and a general downtrend in prices due to favourable growing conditions for the crop.
“Last year you could sell low protein at $8.50 to $9 a bushel, this year you’re going to sell high-protein wheat at $7 a bushel,” said Klassen.
The high protein that’s sold will likely be exported to the U.S., Japan and Europe, which are the regular markets for the crop, he added.
Because this year’s Canadian wheat crop looks as though it will have lower protein overall, it will have to compete more aggressively against other countries, such as the U.S., Australia and the former Soviet Union for demand in the lower-protein markets.
But just because there’s more lower-protein wheat around doesn’t mean the Canadian crop will enter new territory, Driedger said.
“Regardless of high protein, low protein, whatever it is, we’re always competing with other countries in the export market,” he said. “The global export market for wheat is competitive.”
Though the fact that there will be a larger amount of lower-protein wheat from Canada entering the market may not be great for prices, it’s not the only determining factor, Driedger said.
“There are sort of multiple moving parts that play into that (price). So, certainly the more you’ve got to compete into those markets, the less ability there is to get premiums and those sorts of things,” he said.
“Maybe what matters more is the fact that the Black Sea region has a bigger crop, Europe has a bigger wheat crop and what’s going on in the U.S.”
— Terryn Shiells writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.