Dramatically Improved Price Spread for U.S. HRS compared to German E-Wheat
The chart below shows that the price spread in between U.S. Hard Red Spring wheat (HRS) and German E-Wheat has dramatically improved in favor of U.S. HRS wheat in recent weeks. In September / October 2012, U.S. HRS FOB Gulf was € 30 per MT more expensive than German E-Wheat FOB Hamburg. In recent weeks, U.S. HRS FOB Gulf is € 10 to 15 per MT cheaper than German E-Wheat FOB Hamburg.
The two wheat classes that have been compared in the chart are (1) U.S. HRS wheat with 15.9% protein on a dry matter basis and (2) German E-Wheat with 14.0% protein on a dry matter basis. A protein content of 15.9% on a dry matter basis is equivalent to a protein content of 14.0% on a 12% moisture basis, which the way that protein content is reported in the U.S.
Consequently, U.S. HRS is currently and also historically speaking very competitively priced compared to German E-Wheat. As of the 7th of February, HRS with 15.9% protein content (on a dry matter basis) was priced at € 270 per MT FOB Gulf of Mexico and German E-Wheat with 14.0% protein (on a dry matter basis) was priced at € 285 per MT FOB Hamburg.
Apart from the fact that HRS wheat is currently very competitively priced, HRS also offers superior quality in terms of higher protein content (typically about 2.0% higher) and better protein quality. Flour made of U.S. HRS wheat is more elastic and has more extensible gluten than flour that is made of German E-Wheat. As a result, dough made of HRS wheat has better gas-holding capacity than dough made of German E-Wheat. This makes HRS wheat very suitable as blending wheat and for the production of high quality flour mixes for specialty breads, such as Easter breads, and for high volume breads with good crumb structure.
In addition, protein premiums of HRS are very low this year as a result of the abundance of high protein HRS wheat this season. HRS with 17% protein on a dry matter basis (15.0% protein on a 12% moisture basis) is just € 5.00 to € 7.50 per MT more expensive than HRS with 15.9% protein on a dry matter basis (14.0% protein on a 12% moisture basis). This is a rare opportunity for buyers seeking value and wishing to maximize protein content at a minimal cost.
The 2012 HRS wheat crop is of good quality. The average grade is US No. 1 Dark Northern Spring (DNS), and 86% of the crop grades No. 1. The crop averages 14.7% protein on a 12% moisture basis (16.7% on a dry matter basis), above the 5-year average of 14.1% protein on a 12% moisture basis. Specific weights are also strong, averaging 80.6 kg/hl. Although the average DON is low (200 ppb), we always recommend including a DON specification in the sales contract.
For downloading U.S. Wheat’s 2012 Crop Quality Report and the 2012 Regional Crop Quality Report about Hard Red Spring, visit our website: www.uswheat.org/reports/cropQuality.
Reporting Wheat Protein Content in the U.S. and in Europe
In the U.S., wheat protein content is reported on a 12.0% moisture basis. Upon request in the sales contract, the U.S. Federal Grain Inspections Service (FGIS) will report on an alternate moisture basis, in addition to the 12.0% moisture basis. In Europe protein content is usually reported on a dry matter or 0% moisture basis.
U.S. Wheat’s weekly Price Report that is published every Friday afternoon shows the protein content on both the U.S. standard 12.0% moisture basis and on a dry matter or 0% moisture basis that is common in Europe.
It is reported in the following way:
NS/DNS 14.0 (15.9)
The first number behind the wheat class NS/DNS is the protein content on a 12.0% moisture basis, whereas the number between parentheses, so in this case (15.9), shows the protein content on a dry matter or 0% moisture basis.
There is a simple formula for converting protein content from a 12.0% moisture basis to a dry matter or 0% moisture basis: Protein (on 12% moisture basis) / 0.88
Protein content on 12% moisture basis = 14.0%
Conversion to dry matter basis: 14.0 / 0.88 = 15.9% on a dry matter basis
The formula for converting protein content from a dry matter or 0% moisture basis to a 12.0% moisture basis is also easy: Protein (on dry matter basis) X 0.88
Protein content on a dry matter basis = 14.0%
Conversion to 12.0% moisture basis: 14.0 X 0.88 = 12.3% on a 12.0% moisture basis
Protein content in the U.S. has been reported on a fixed 12% moisture basis since the Grain Quality Act of 1986. This was done to allow for comparison of protein in lots having differing moisture levels.
Update about Tariff Rate Quota
As of January 1, 2013 the country-specific Tariff Rate Quota (TRQ) of 572,000 MT for U.S. origin wheat has become available again. Until June 30, 2013 a maximum quantity of 572,000 MT of low and medium quality common wheat of U.S. origin can be imported in the EU at zero duty. Applicants must submit a license application to the appropriate Member State. As of February 1, 2013 the EU has issued licenses for the imports of a total of 268,000 MT of U.S. origin common wheat. Most of this quantity will be Soft Red Winter wheat (SRW) destined to Spain. Roughly 25,000 MT of SRW will be destined to the UK and about 25,000 MT of SRW will be destined to Italy.
Consequently, there is 304,000 MT of TRQ for U.S. origin wheat left. Those who consider importing U.S. wheat under the TRQ will therefore probably have to act quickly, because the remaining quantity of 304,000 MT might be depleted soon. The table below summarizes the TRQ situation as of February 1, 2013:
When the 572,000 MT of annual import Tariff Rate Quota of the U.S. will be exhausted, importers can make use of the remaining import quota 09.4133, which is for the imports of wheat from all third countries.
U.S. Drought Monitor and U.S. Seasonal Drought Outlook According to the USDA Drought Monitor Map, a large part of the Hard Red Winter wheat (HRW) area in the central and southern Great Plains has been severely impacted by the lack of moisture. Spring rains will be especially important for the 2013 crop.
The U.S. Seasonal Drought Outlook shows improved prospects for moisture conditions in the next three months in the Northern Great Plains, especially in Minnesota and much of northern North Dakota. Nationwide, the map shows little change in the persistent drought ranging from South Dakota, Nebraska, Kansas, Oklahoma and Texas.