OTTAWA, ONTARIO, CANADA — While Canadian wheat production dropped 5% in the 2017-18 marketing year, the quality improved and about 90% of the crop will grade in the top two milling categories.

This has led to short supplies of wheat for feeding as wheat growers hold onto their crop in expectation of better prices, according to a report from the Foreign Agricultural Service (FAS) of the U.S. Department of Agriculture (USDA).

Total wheat production is estimated at 29.98 million tonnes.

“Despite dry prairie conditions for much of the growing season, the prairies experienced good quality crops and solid spring wheat yields, due to sufficient soil moisture remaining from the winter months and improved genetics,” the FAS said.

Average protein levels for Canadian Western Red Spring wheat were 13.1%, below the 10-year average of 13.4%.

The average durum protein level was 13.6%, well above the 10-year average of 12.9%, and the Canada Prairie Red Spring (CPRS) crop exactly matched the 10-year average of 12.1%.

Feed wheat supplies have dropped from national record highs in June 2017 to tight levels in December, the FAS said.

“Strong selling prices for feed wheat, which is on par with barley in parts of Alberta, and increased demand for U.S. corn in October and November 2017 point to broader tightness in Canadian feed grain supplies,” the FAS said.

Low supply of Canadian feed grain can be explained both by supply-side fundamentals and growth in demand, the FAS said. Producers have been reluctant to sell wheat at feed grade prices, expecting a higher price that matches the high quality of this year’s crop. In addition, the quality wheat doesn’t have the higher protein levels preferred by feeders.

Less feeder cattle have been exported due to strong demand so greater numbers are being fed in Canada this winter than a year ago.

Cattle-on-feed numbers in Alberta and Saskatchewan reached the five-year average high levels in December, rising sharply above 2016 levels, the FAS said.