Wheat Pricing

Protein levels are an important factor in setting prices for hard red spring wheat, particularly that grown in Minnesota, Montana, North Dakota, and South Dakota. Because higher protein commands higher prices in the market, the accuracy and reliability of protein testing is of great importance to these states and to those who buy and sell high-protein wheat. In 1993, concerns were raised that a new technology for estimating wheat protein levels--the Near Infrared Transmittance technology--was producing estimates that were lower than those generated by an older technology. This new technology was introduced by the Agriculture Department's Federal Grain Inspection Service. This report (1) describes the pricing situation for wheat in 1993, (2) evaluates the Federal Grain Inspection Service's introduction of the new technology, (3) analyzes the economic impact of the new technology on segments of the industry, and (4) describes recent efforts to standardize unofficial protein testing of wheat.

GAO found that: (1) prices for high-protein wheat reached record levels in 1993 because of low supplies caused by poor crop quality and bad weather; (2) although FGIS took reasonable steps in introducing NIRT technology, difficulties with technology transfer and the poor crop conditions in 1993 undermined the wheat industry's confidence in FGIS actions and the NIRT technology; (3) NIRT technology generally provided lower protein readings for some damaged high-protein wheat and, in response, the industry increased the premiums for high-protein wheat by an average of 50 cents per bushel to offset losses due to the lower NIRT readings; (4) unofficial protein testing is generally more common than official testing; (5) the National Conference on Weights and Measures and FGIS have proposed standards for unofficial protein testing to make such testing more consistent; (6) although the standards are not yet enforceable, manufacturers can use them as guidelines in designing their protein-testing equipment; and (7) FGIS plans to begin testing inspection equipment using the standards in late 1994.