How to Leverage Differences in Canadian and U.S. Wheat Grading

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Most Canadian farmers know that there are differences between the wheat grading systems in Canada and the U.S. What many don’t realize is that these differences could mean thousands of dollars (even hundreds of thousands) more in their pocket if they can figure out how to make their wheat and durum fit through some notable cracks in the two grading systems. 

This scenario was very evident for durum last fall. As an Agri-Trend Market-Coach, I came across a few incidents where Canadian durum was being graded a #3 Canadian Western Amber Durum or lower in Canada, with a value of around CDN$9/bu. In comparison, this same grain was being graded a #1 Hard Amber Durum in the U.S., with a value of CDN$15/bu.  

This difference in price can be primarily attributed to differences in the grading and graining buying systems in the two countries. Here, we’ll look at how these two systems vary — including differences in eligible varieties, wheat subclasses (visual appearance), buying specifications (falling number) and grading. 

Eligible Varieties

In terms of eligible varieties, the U.S. wheat class system is more open than the Canadian system. Under the U.S. system, almost any variety of wheat that meets the visual and hardness characteristics of the class can be made eligible for a particular class, if the variety owner brings that variety to market. In Canada, it typically takes three years of end-use quality, agronomic performance and disease resistance trials before a variety is recommended for registration, then registered and added to a variety designation list. 

As a result of the more permissive system, U.S. grain buyers will at times contract grain by variety to ensure that they get the quality specifications they are looking to obtain within a wheat class. 

U.S. Subclasses

Within the U.S. grading system, both spring wheat and durum are divided into sub-classes based on vitreous content. For example, Dark Northern Spring (DNS) wheat has to contain kernels that are 75% dark and hard vitreous (DHV), Northern Spring (NS) wheat has to contain kernels that are 25% to 74% DHV and Red Spring (RS) wheat contains less than 25% DHV kernels. Durum needs to be greater than 75% hard and vitreous of amber colour (HVAC) to be considered Hard Amber Durum (HAD), greater than 60% HVAC to be considered Amber Durum (AD) and will be classified as durum (DU) below 60% HVAC. Each of these subclasses will have different prices with higher vitreous grain having higher prices.

Within the Canadian system, a minimum hard vitreous level is required for the #1 Canadian Western Hard Red Spring (CWRS) grade but other than that, vitreous does not apply to the CWRS class. It is slightly different for Canadian Western Amber Durum (CWAD), where the top three grades each require a minimum hard vitreous kernel percentage. 1 CWAD needs to be 80% hard vitreous kernels (HVK), 2 CWAD needs to be 60% HVK and 3 CWAD needs to be 40% HVK, whereas 4 CWAD and 5 CWAD don’t require any specific HVK percentage. And just to keep you on your toes, hard vitreous is assessed slightly differently in the U.S. than in Canada, so don’t expect the same value in both systems — although they should be close.

 

The CGC is currently conducting a review of the wheat classification systems and may implement some changes to the current system as early as this fall, such as adding a new wheat class, streamlining varieties in the existing classes and potentially eliminating some of the smaller wheat classes. 

 

Falling Number

Although not an official grading factor in Canada or the U.S., one grading specification often required by U.S. elevators, U.S. grain buyers and almost all other world grain buyers is falling number. Falling number is a measure of the baking characteristics of the flour produced by the grain being sampled. 

Essentially, the falling number test is a measure of sprouting activity of the seed. Seeds that have sprouted will release an enzyme called alpha amylase that breaks down the starch of the seed. Damaged starch reduces the flour baking quality of the milled kernel. Therefore, falling number is a very important factor for making high quality breads. The CGC has done a considerable amount of analysis on pasta production and falling number and found very little correlation between pasta quality and falling number in durum. As a result, falling number is not a big concern for most Canadian durum buyers, although this view is not widely held in the U.S., which still requires falling number tests on most durum purchases.

Grading

The U.S. grading system is primarily based on three factors: test weight, total defects/damage and wheats of other classes with some maximum limits on insect damage and extraneous materials (such as glass, stone and animal filth) thrown in for good measure. 

The US grading system allows 2% total defects and 3% total damage for a number 1 HAD, 4% total defects and 5% total damage for a 2 HAD, 7% total defects and 8% total damage for 3 HAD. Within the U.S. grading system, fusarium damage would fall under total defects.

In contrast, the Canadian system is considerably more specific and defined with a number of individual grading factors applying to each class and type of grain. For example, within the durum class there are 14 individual grading factors to be considered when grading a sample — not including test weight, HVK, foreign material and wheats of other classes (which are somewhat similar to the U.S. system). Most of the durum downgrading I saw last year was related to green kernels, frost/heated, sprouted and of particular importance in 2014 was fusarium damage.  

Fusarium

As most farmers know, fusarium was a serious problem in Western Canada last fall, especially in winter wheat and durum, which tend to be very susceptible to this disease. Fursarium is a serious problem throughout the world, particularly in climates with hot/humid growing conditions. Western Canada was very wet last year so the fusarium problem was particularly acute is some of the wetter areas.  

Within the Canadian grading system, wheat and durum are downgraded based on visible fusarium.
In reality, very few importing countries buy wheat or durum based on visible fusarium — instead, they buy wheat based on Deoxynivalenol (DON) levels, i.e., vomitoxin.  

Historically, a rule of thumb suggests that 1% visible fusarium is approximately equal to 1 ppm of DON and that 2% visible fusarium is approximately equal to 2 ppm of DON, and so on. While this relationship holds reasonably well over a large number of samples, individual samples can vary considerably from this rule. I have seen durum samples with over 10% visible fusarium with less than 1 ppm of DON and samples with 1 percent fusarium and 4 ppm DON.    

Take-Home Lessons

Lesson 1: Beauty is in the Eye of the Beholder 

Given the grading and buying specifications above, you can start to see how some wheat and durum in Canada may fit better in the U.S. system, and vice versa.  

For example, durum with low falling number and a number of small degrading factors that are not over the limit on any specific Canadian category, in theory, might fit better in the Canadian system.  

Conversely, durum with only one degrading factor might fit better in the U.S. system because that wheat or durum sample might be over the specific grade factor in Canada but under the total defects limit in the U.S.  

Lesson 2: Put a Little Change in your Pocket

In the example described at the beginning of this article, Western Canadian durum was being downgraded to a #3 CWAD, primarily due to fusarium. In some incidences, this durum had a high HVK, high falling number and less than 2% total defects so was able to achieve a #1 grade in the U.S., and considerably higher returns. Six dollars a bushel on 1,000 tonnes is a lot of change in your pocket!

 

Lawrence Klusa is an AGRI-TREND Market-Coach and he can be reached at lklusa@agritrend.com or 204 803 8884. 

About the Author
Lawrence Klusa

Lawrence Klusa is a marketing coach with Agri-Trend Inc. He has spent over 25 years working as an agricultural consultant and grain industry manager - 10 of these years are a commodity risk manager primarily trading wheat futures and options on the US and Canadian futures exchanges. :Lawrence grew up on a farm at Flora, Saskatchewan, He has a BSA with a major in Economics from the University of Saskatchewan and a MBA with major in Finance from the University of Calgary. He can be reached at iklusa@agritrend.com.


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