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Protein Premiums and Discounts in Spring Wheat (07/12/18)

In my contribution to the Crop and Pest Report two weeks ago, I described a decision support system for determining when a post-anthesis application of nitrogen might be profitable.

Protein Premiums and Discounts in Spring Wheat

In my contribution to the Crop and Pest Report two weeks ago, I described a decision support system for determining when a post-anthesis application of nitrogen might be profitable. It was brought to my attention that my article focused on premiums and neglected to address the issue of discounts that can occur when protein levels drop below 14 percent. My rationale for focusing on “premiums” rather than discussing premiums and discounts separately was that when you increase protein you potentially increase the value of the crop, whether it is because of a true premium for protein levels above 14% or because of reduced discounts when protein levels are less than 14%. When addressing the topic of premiums and discounts in various discussions and meetings, I frequently hear the comment that discounts (when protein is less than 14%) are always much higher than premiums (when protein content exceeds 14%). In reality, discounts and premiums follow each other closely; at least when considering variations of 1 to 2 percent from the standard 14% protein (see Figure 1). By looking at these historical data, one can see that discounts and premiums for protein often mirror one another. There are notable exceptions to this, however, when premiums were much greater than the discounts (e.g. June 2005) and when the opposite was the case (e.g. December 2011). Moreover, there were several periods when there were no discounts or premiums. The value of protein is determined by industry and is based on the availability of wheat with adequate levels of protein in the supply chain. Interestingly, the current premium for 15% protein wheat (+$0.40) is double that of the discount (-$0.20) for 13% wheat (Table 1) for the two western North Dakota elevators that had prices posted on the web.

Although the value of protein varies and is hard to predict in advance, generally, higher protein levels add value to spring wheat when marketed regardless of whether it is boosting it from 13% to 14% or from 14% to 15%. The reason that applying extra nitrogen to a high yielding, lower protein variety/crop is more likely to be profitable than other scenarios is that there is more potential return to the treatment because there are more bushels to multiply by when calculating the returns from the value of added protein.

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Joel Ransom

Extension Agronomist for Cereal Crops

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