CHICAGO North Dakota wheat farmer Terry Weckerly applied extra fertilizer to his wheat this summer to coax more protein out of the crop. Flour mills and grain elevators were paying near-record premiums for high-protein wheat and he wanted a slice of it.
The fertilizer worked too well. Weckerly and other spring wheat farmers are harvesting a crop with protein content of more than 15 percent. The protein-richest crop in five years has led to those high premiums evaporating.
Scorching weather in July stressed the crop, which usually leads to lower yields even as the wheat plants devote more energy to protein production.
However, premiums for higher protein wheat -- which this March had soared to more than $6 per bushel above Minneapolis Grain Exchange spring wheat futures -- the highest since 2008 -- are now gone due to an abundance of it, replaced by a dynamic some grain industry insiders have not seen in a decade: a push for low-protein spring wheat.
"We're going from famine to feast," said a manager at a Canadian grain elevator, who like several of the dozen grain merchants interviewed for this article was not authorized to speak on the record.
North Dakota is the top producer of hard red spring wheat, which is one of the most valuable wheat varieties, prized for its high protein and gluten content.
Flour produced with high-quality spring wheat better absorbs water, making a dough that in turn results in airier, more stable loaves of bread, bagels, rolls or pizza crusts.
The total U.S. spring wheat crop, excluding the durum used to make pasta, was forecast by the U.S. Agriculture Department at 522 million bushels, down 15 percent from last year, with both the crop and yield estimated to be lowest in four years.
MGEX spring wheat futures are trading near a three-month high due to the small crop, closing at $9.50 per bushel on Thursday, and the Minneapolis premium over Chicago Board of Trade wheat remains at about a two-month high.
The globally-tracked CBOT trades in the lower protein soft red winter wheat futures, while hard red winter wheat trades at the Kansas City Board of Trade.
But with half of the crop harvested, the wheat had an average protein content of 15.1 percent, up from averages of 13.7 percent and 13.2 percent during the past two years, according to the U.S. Wheat Associates.
It would be the most protein since 2006 and only the second time in the last 10 years the crop averaged more than 15 percent protein.
Cory Tryan, who manages the Alton Grain Terminal in Hillsboro, North Dakota, said: "The (protein) scales always adjust to what comes off each season, as the mills and the export market adjust to what we have. It's not uncommon. It's just such a wide swing in one year that everyone is up in arms about it."
MILLS HUNT FOR LOW-PROTEIN WHEAT
Two months ago, rail cars of 15 percent protein wheat delivered to Chicago were priced $5.10 per bushel above the benchmark MGEX futures price while 13 percent wheat was 80 cents above futures, according to USDA data. Last week, the price was the same for 13 or 15 percent protein.
"The premiums have basically disappeared," said Dan DeRouchey, general manager of Berthold Farmers Elevator near the North Dakota-Minnesota border.
In normal years, elevators would slash the price they give farmers for wheat delivered under 13.5 or 14 percent protein, but this year flour mills and elevators are seeking low-protein spring wheat from Montana or South Dakota, or hard red winter wheat from Colorado, Nebraska or Kansas.
"We're looking for anything below 13 percent protein right now," said a grain buyer at a Kansas flour mill.
The southern U.S. Plains HRW wheat harvest also had higher-than-normal protein this year while some lower-quality HRW supplies are being used as animal feed after wheat prices fell below corn for the first time since 1996.
"The market is saying we don't need to pay up for protein. The market is going to have to pull those lower proteins out now," Country Hedging analyst Tim Emslie said.
IMPORTERS HAPPY WITH HIGH PROTEIN WHEAT
Importing countries, such as Japan, which favors high-quality wheat, may welcome shipments with more protein.
"Some of our overseas customers, particularly in Asia are happy to see the high protein," said Erica Olson, marketing specialist at the North Dakota Wheat Commission.
But it could be several more weeks before U.S. mills adjust to the new-crop wheat still coming out of the fields. Mills, above all, value consistency and work to produce a uniform product, whether they have to blend up, or down, the protein content in their flour.
Vance Taylor, president of the state-owned North Dakota Mill, declined to comment on any challenges the mill may be facing in sourcing low-protein wheat this year.
"We have had good demand from our customers," Taylor said of the mill, which has enjoyed record profits in each of the last two years.
(Reporting by Michael Hirtzer; Editing by Alden Bentley)