RPT-US high-protein wheat prices soar, millers nervous

Mon May 16, 2011 4:08pm EDT

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(Repeats to fix typo in cross head)

* Hard spring wheat cash basis prices at historic highs

* Exporters, domestic millers scramble for nearby supplies

By Christine Stebbins

MINNEAPOLIS, May 16 (Reuters) - Grain trading in the local cash wheat market is often routine and quiet, with flour millers and exporters taking turns to bid on the high-protein hard red spring wheat grown in North Dakota and Minnesota.

But this spring has been anything but routine, with a scramble clearly on among users of the grain, which is highly sought for its flour yields and to blend with lower-protein wheats to meet customer contracts.

The buzz among U.S. veteran wheat buyers standing around eight-foot long hardwood tables that once stood on the historic Minneapolis trading floor is all about the red hot domestic spring wheat market.

The traders -- buyers like Cargill's [CARG.UL] Horizon Milling, CHS (CHSCP.O), Archer Daniels Midland (ADM.N), ConAgra (CAG.N) and Cereal Food Processors -- bid as much as $14.30 a bushel for spring wheat, or $5 or more over the Minneapolis Grain Exchange futures price, fighting over rail cars of spring wheat.

A year ago the same wheat was at $8 a bushel.

"The last time we saw these kind of prices for 15s was in 2008 when 15 percent protein wheat went over $6 a bushel premium to futures. After that you'd have to go back to 1993," said one long-time Minneapolis cash wheat trader.

(Graphic of HRS basis at 450 locations compiled by Grain Hedge, Bozeman, Montana: r.reuters.com/jym59r)

Driving the buying frenzy this year is strong world demand for wheat combined with weather problems overseas, with wheat damaged by rains in two big exporters, Canada and Australia.

"This is the oddity of the year where we don't have any competition. From an export perspective, they name their price and are still looking at a $2 (profit) margin," said another veteran Minneapolis grain merchant.

"Mexico, Taiwan, Japan -- they are buying it at 600 (cents) over because they're afraid we are going to run out because they don't have another supplier, Canada doesn't have it," he added. "When they want a train, this market will fluctuate a $1 in one day. I can only count 3 or 4 years in the last 30 that we've been this high on a basis level."

Robust demand fueled Minneapolis wheat futures to a 2-1/2-year high above $10 a bushel in late February, reminiscent of the all-time high of $25 notched in 2008 -- a price that nearly doubled the bigger wheat markets in Chicago and Kansas City that reflect lower protein deliveries. The 2008 rally was spurred by historically low global stocks.

Continuing to throw fuel on the fire for market bulls now is the cold, rainy spring in the northern Plains, where farmers are now trying to plant spring wheat and durum wheat -- another high-protein hard wheat used to produce pasta.

BIG RAIL DELAYS, SPRING PLANTING LAGS

Given the slow plantings, farmers have held on to remaining old-crop stocks, as they usually do until prospects improve.

"But the basis has had to work harder to encourage movement," said Jim Peterson, North Dakota Wheat Commission marketing director.

Basis and futures are both strong similar to 2008, Peterson said, but what is different in 2011 is a stronger export basis and bigger logistic problems.

"End users have had to 'double buy' to hedge against rail delays -- as much as three weeks behind," Peterson said. "On the back end of the pipeline, we've got very good demand, both export and domestic."

The question on everyone's mind: a repeat of 2008?

Minneapolis cash traders say much still hinges on Mother Nature. Rains have spring wheat planting 2 to 3 weeks behind but have also swollen the Red River, flooding prime spring wheat acreage in the Dakotas and Canadian Prairies.

"Everyone is going to be watching the planting progress for how many acres in spring wheat and corn we actually lose," said the long-time cash wheat trader who quoted 2008 basis levels.

"On the assumption that the farmer gets his spring wheat planted, I expect premiums will break last half June into July," he said. (Reporting by Christine Stebbins; Editing by Marguerita Choy)

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