Difficulties facing bakery flour buyers are evident in wheat futures prices that, even after recent setbacks, are far higher than historical averages. The Minneapolis July contract remained above $10 a bu, and Kansas City July was $8.71. Both prices were about double levels prevailing two years ago.

For flour buyers, though, the dramatic futures price escalation tells only part of the story. Wheat basis levels for high protein spring wheat and hard winters have climbed to astronomical levels, figuratively adding real insult to the injury of the futures strength. The basis for 15% spring wheat has been equivalent to about $6 over the futures price (versus $3.50 over in 2009), while 12% hard winter has been +65c (+5c).

Factors contributing to the extraordinary strength include transportation equipment tightness and the below average protein of the 2010 hard winter crop. The transition to new crop and beyond is expected to be highly volatile for the cash basis and could be driven by a wide range of factors such as the size of the corn crop and the need to “make space” this fall. Higher protein content is thought extremely likely for the drought-reduced hard winter crop in Kansas, Oklahoma and Texas, which could prompt premium weakness.

While it is far too early to predict the protein outcome of the 2011 spring wheat crop, heavy early rains have raised concerns of the likelihood that protein content will be below average. The uncertain situation creates difficult choices for bakery flour buyers but seems to argue in favor of taking advantage of forward offers that may be forthcoming in the weeks ahead that are even within “shooting distance” of historical averages.