Protein spreads

[jethro456]

I'm interested in booking some new crop wheat, but
don't know who to book through. Every company
uses a different base grade, so figuring out which
price is best is hard.

What is the difference in value between a #1 13 and
#13.5? I know its market driven, but what are your
strategies?

[charliep]

The numbers guy here so I should have a good answer for you but I don't (going through the same learning process you are). The two places I am currently looking are traditional CWB payment spreads (and if the data is available, spreads from the CWB sales side like the domestic spreads use for flour mills - domestic human consumption pricing. USDA is also a wealth of information on protein values so will be looking at their tradtional spreads over time.

If we use the US as a model, protein spreads change quite dramatically year to year based on crop quality and protein levels that year in both hard red winter wheat and dark northern spring US wheats. There is work to be done on protein spread variation year and within crop years (seasonaliy).

I suspect things will become more apparent as the western Canadian activity starts this fall and farmer deliveries into the elevator commence. I also think there will be more pressure on grain companies to standardize their base grades.

You will also have to watch the results of the US crop. The spring wheat crops in the US went in early and have had close to idea growing conditions. I suspect (may be proven wrong) protein levels will be down - need to watch though.

[wmoebis]

I was wondering, if say You contracted #1- 13.5 protien and frost hit and wheat didn't make grade and protien, shouldn"t that be covered under Act of God?

[charliep]

Not in the contracts I have heard about. Tonnes committed/grade spreads to be determined at time of delivery. Not sure how the CWB contracts are handling this.

[jethro456]

As far as I know, if u don't make grade, u get
discounted off of the price/grade u booked. Without
knowing what that discount will be, you really don't
know whether the locked price is any good or not

[jethro456]

As far as I know, if u don't make grade, u get
discounted off of the price/grade u booked. Without
knowing what that discount will be, you really don't
know whether the locked price is any good or not

[charliep]

That is the experience in the US - spreads determined at delivery. It has also been the way CWB producer payment options were handled (spreads based on initial payments at delivery date).

[KKFarms]

Discount is supposed to occur at time of delivery. It changes daily. Today Viterra was $.037 per .1% of protein. Couple months ago they were $.017. In the fall who knows. Paterson Grain is talking about $.08 per .1 on grain already booked. Some companies will let you lock the spread others well................... Lots of protein in the US crop coming off right now.

[ado089]

I would get a broker and sell the
contracts on the exchange as an offset to
your expected production. That will let
you shop around for the best basis and
discounts/premiums come fall while
allowing you to lock in a futures price. I
would not lock in a price at an elevator
unless you enjoy being on the receiving
end of sodomy.

[Braveheart]

Well Ado, sodomy aside, what if the elevator price times your yield gives you a decent return above your breakprofit price? Turning grain into cash to pay bills,and meet debt obligations etc. is a good thing.

Too often I think farmers hold out for that elusive "high" (I mean price). In this new era of marketing wheat, contracts are likely the only way to get grain into the elevator as well. So, decisions may affect not only cash flow but storage as well.

If you can access cash prices that keep your cash flow positive that should be a good thing, right?

I will admit I like to keep things simple. Anyone can make something complicated. But, how complicated do we really want to make selling wheat.

[$short]

I agree with what ado is saying. Why commit to a
contract when you don't know your quality?
Protein levels? Specs such as FN or HVK?

Too many variables that aren't known.

If you like the prices short the futures or buy
some puts. It's the same thing. Nothing
complicated about this at all.

[bgmb]

Put your wheat in the bin then make a deal when
you know what you have

[oliver990]

have been waiting my whole farming career to have this debate. our marketing agency sheltered us from the worries of protein, for a cost of $2/bus. the foward HRS we have sold we picked target price with reference grade of #2 13px. i found willingness to negotiate price with lower ref grade from P&H, Viterra and Richardson

[Braveheart]

It's like protein has its's own market. When protein is abundant, protein spreads are more narrow and viceversa. For now, we just consider what the average protein spreads have been for the past 5 years and use that as an estimate.

We have also set (and picked off) targets. We used a base of #2cwrs 13.5px. We deal exclusively with Richardsons and found them to be as fair as possible with what is known about the marktplace as it develops.

What I like is we are selling to a sale. I like the feeling of the demand pulling our grain into the chain rather than us pushing it in.

If we had the luxury of waiting to see what quality we had first our strategy may have been different. However, and to the good, right now our crops look like our production will far exceed our storage and will look to get our contracted portions into the system.

[ado089]

I'm not talking about anything fancy.
Sell a Minneapolis contract and hold on
to it until you sell your actual for
cash at the daily price and buy back
your paper the same day. By doing that
you will be covering any downside that
happens between now and when you sell
your actual product. That leaves you
open to shop your basis and protein
spreads. Depending on your broker it
should only cost a few cents per bushel,
if that. In my short farming career
I've been screwed around enough by grain
companies enough to learn not to commit
anything to them until that grain is as
close to the pit as possible.