Soft Red Winter Wheat Quality: Should Grade Limits for Test weight be Changed?
Farm Management Update, April 1996
By Eluned Jones
Test weight is used as a proxy for the general health and productive output potential (flour) of wheat.
The use of test weight as a primary determinant of grade has been contended for at least the past thirty years. In spite of rapid progress in measurement and processing technology the means of accurately and economically measuring the attributes proxied by test weight are still unavailable. While economic signals in the grain markets were strongly influenced by farm income support programs, the importance of grades and standards has been diminished. Movement toward a more market oriented agriculture sector that will rely on market incentives to direct decision making has brought the processes by which these signals are created to the forefront of producers concerns.
Price is determined by expectations regarding:
* U.S. supply;
* world supply;
* carryover stocks in the U.S. and world;
* U.S. flour milling demand; and
* U.S. feed demand which depends on relative prices of corn and soybeans.
Price is discovered via the Chicago Board of Trade for Soft Red Winter Wheat. A contract is based on #2 USDA grades and standards delivered to Chicago or Toledo (58 pounds test weight).
Regional prices reflect demand and supply at market locations and transportation costs to points of delivery. Local markets (country elevator, river elevator, terminal export elevator) will reflect differences in the value of wheat in food and feed uses, as well as incentives and disincentives to deliver to that market.
The discount schedule should reflect the added risk to buyers of not receiving wheat with the underlying attributes described by the grades and standards. If the grades and standards provide an accurate description the market determined price will reflect the value of the wheat in its end use. Thus, the higher the added value of the end product the greater the value of wheat as an input.
The proliferation of value-added products that use soft red winter wheat is paralleled by the increasing complexity of the processing technology and increased requirements for consistent inputs.
Discounts are applied in the market in an order of magnitude that reflects the importance of the attribute to the end-use processor.
While discounts provide a disincentive, premiums are rarely seen in the market as an incentive except where the market is in short supply of quantities that meet the minimum requirements. Most typically, premiums may be paid for "#1" grade as a proxy for ensuring zero sprout damage in a weather constrained crop year.
Research studies have shown that:
* risk of sprout damage increases with decreasing test weight;
* increased foreign material is generally associated with decreased test weight;
* scab damage and vomitoxin presence decreases grain filling and can be associated with decreased test weight.
In the absence of specific, segregated wheat varieties with a known percentage of flour yield:test weight relationship, a known susceptibility to weather induced scab, and a known susceptibility to weather induced sprouting, the miller has to rely on the established relationship for homogeneous (blended) wheat.
Research studies indicate that an approximate linear relationship exists between percentage of flour yield and test weight for blended wheat, even though this relationship does not hold for specific varieties. Studies have also shown that the error associated with estimated relationships significantly increases at 56 pounds test weight and below. The risk (as measured by error in estimation) in percentage of flour yield, sprout damage, scab damage and associated levels of vomitoxin faced by the miller all increase at 56 pounds test weight and below.This additional risk can result in increased milling costs associated with:
* additional cleaning (aspiration) of wheat at the mill;
* slower processing;
* less percentage of flour yield, i.e. lower volume of flour output; and
* necessity of reselling sprout damaged wheat.
These additional costs, or the risk of incurring these additional costs, are passed back to the producer in the form of discounts.
The current price of wheat is determined against a 58 pounds test weight standard that reflects the value of 58 pounds test weight wheat in processing. If the standard is lowered, the market price will adjust to the value of the new standard of wheat, i.e. if that standard is 56 or 57 pounds, the new price will be the 58 pounds price less the equivalent discount. Futures and spot market prices will probably adjust to prices equivalent to the current #2 (58 pounds test weight) less the discount, less the added risk costs, i.e. the new market price has the potential to be LESS than the current price since the risk to the miller of decreasing the accuracy of information in the grade signal will increase and translate into higher discounts.
If premiums were typically paid for higher test weight wheat, i.e. if premiums for 60 pounds wheat were historically available in all markets, there would be reasonable argument that a continuous scale were being used and producers marketing 60 pounds wheat would not be adversely affected by the change. However, this is not the case.
Erroneously, differences in basis in different markets are considered to reflect differences in quality. Theoretically, this should not happen. However, discount schedules are established early in the crop year before full knowledge is available. Thus, some variation in the supply and demand for wheat meeting or exceeding a certain grade may be reflected in local basis values as these can adjust more rapidly to changing market conditions.
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