ISSUE 120, March 8, 2024

U.S. Secretary of Agriculture Celebrates New Certified Climate-Friendly Rice Brought to you by Columbia Grain's Enrich Foods, LLC

On March 26, 2024, Columbia Grain Intl. LLC and its subsidiaries, Enrich Foods LLC and Great River Milling participated in a Product Launch Event hosted by the USDA and the honorable Secretary of Agriculture, Tom Vilsack. Our Subsidiary, Great River Organic Milling is launching the first ever identity preserved Climate Smart Agriculture Certified product as Long Grain White and Brown Rice. This product is grown by bold and innovative farmers from Arkansas who have subscribed to a different way of Rice production called Alternate Wetting Drying (AWD) method. Using innovative techniques, they are able to reduce the greenhouse gases created by traditional rice production by 60%, reduce water use by 33%, create healthier soil, promote carbon sequestration and the rice absorbs less heavy metal that would ultimately be consumed. These climate smart practices have come out of the Inflation Reduction Act of 2022 where the USDA appropriated $18 billion in funding specifically for Climate Smart Agriculture and Forestry (CSAF). Columbia Grain Intl. has collaborated with a company called Agricapture who received a grant from the USDA to propagate Climate Smart Certified Rice. As a team, we were able to launch the Identity Preserved consumer product since the inception of the program.

Our President and CEO, Jeff Van Pevenage, started the ceremony with a speech on CGI’s participation and vision for what he believes will be a revolutionary change to agriculture in America and the source of new revenue streams for US farmers. He was also given 20 minutes privately with Secretary Vilsack to discuss Agriculture matters revolving around railroad performance, prevent plant ideas, school lunch programs and USAID use of more climate smart products and specialty crops, and particularly labor in rural areas of the PNW, Northern tier of the US and Nebraska. Secretary Vilsack ended the ceremonies with a 15-minute speech detailing the what and why’s of Climate Smart Agriculture and where the USDA intends to go in the future. It was impressive to learn that it is more about rebuilding rural America, providing more revenue streams for farmers, preserving more soil and improving the nutritional value of our food than it is about climate. With the knowledge learned through this process from Enrich Foods, LLC and Great River Milling, Columbia Grain will be opening additional avenues for Climate Smart Agriculture including peas, lentils, chickpeas and even Durum to create Climate Smart pastas. Look for these Sustainable and Regenerative programs in our portfolio going forward. Talk to your local manager if you have interest and want to learn more.

In the words of Secretary Vilsack when asked, “Why are you here today in Wisconsin”? "Today was a truly historic event. There is no place else I should be today. We are proud that Columbia Grain Intl. LLC was at the table and a leading player in this revolutionary time."

BARLEY

Ryan Statz, Merchant

In the old crop, it is more of the same with barley markets… unfortunately. The industry continues to see poor malt demand coupled with inconsistent logistics all while sitting on a burdensome barley supply from last years near record crop. The fundamentals have made for subdued and frustrating markets at best. The market has been waiting for a driver to shake things up and while that is unlikely in the old crop, we may have gotten our first inclination of positivity when the USDA issued its first look at next year’s acreage forecast below. We knew the weak prices would pressure acreage forecasts, but the degree was unknown. While the below are ‘initial’ forecasts and further changes would occur, it is a starting point that the market will need. Overall, they took US acreage in total down 17% y-o-y with Montana down 20% y-o-y. A big reduction that will be debated. But the numbers are what the market will trade until we get more information.

DURUM

Ryan Statz, Merchant

Markets are quiet in the old crop wrestling with substantial grower length against subdued commercial/international demand. We know overall North American markets are tight, but the presence of Turkey and other non-typical suppliers has pressured prices to pre-harvest (‘23/24) levels. What was thought to be more of a demand-pull environment has turned course to more of a supply-push market. The million-dollar question remains, will we see Turkey and Russia in international markets again next year or was that a one-time thing? 



In the new crop, the market was given its first look at forecasted USDA acreage. Below are the forecasts: 

All in all, the USDA is forecasting US total Durum acreage to be up 21% y-o-y with Montana seeing a near equal increase at 21%. The forecasts will be debated and likely will change some as we move into planting, but the numbers are what the market will trade for the time being. A 2.0 mil acre planted crop in the US would be a 7-year high. Alone this is substantial, but when you throw this on top of a 6.3 mil acre forecasted crop in Canada, the acreage uptick can be looked at as overwhelming especially given the dynamics around the rest of world markets. Yes, it is still early with dry pockets throughout marketing areas which will play into overall yields, but the increase is burdensome to say the least.

WHITE WHEAT

Steve Yorke, Merchant

Amending Basis Contracts 

“Inverted Market” 

We covered Amending Basis contracts in a “Normal Carry Market” in our last edition of the Newsletter, with the promise of discussing amending Basis contracts in a “Inverted Market” in this edition of the newsletter.

As discussed in the last edition, I do prefer the term “amending” instead of “rolling” because we are changing, or amending, the original contract. We are amending the original contract to have new terms, mostly creating a new delivery period along with a price amendment. With that I wanted to look at some hypothetical Basis contracts and how amending an original Basis contract would work in an “Inverted Market”.

When you initially sell grain using a Basis contract you are locking in just the Basis side of your cash contract, you will set your Futures at some date in the future giving you your final cash price. Let’s say today is April 4th, 2024, and we see the below market structure – again this is a “Normal Carry Market” structure we are currently in, meaning the market will pay you more for your grain the further out the calendar you go. With that, December 2024 futures are at a premium of 20 cents to September of 2024 in the below chart. Let’s say that you sell 5,000 bushels on a Basis contract using September 2024 Basis and lock in -.10 KWU4 for Harvest Delivery anticipating the futures price will go up and you can lock it in at a later date (the risk on a basis contract is that futures may go down).

Let’s say 2 months from now the market structure has changed and the futures market and basis levels now look like the below chart. We can see that both basis and futures prices have come down from where you originally locked in your basis contract on April 4th. Looking at the futures in the below chart you may want to “buy more time” to set your futures. To do this you would amend your original basis contract from September 2024 to December 2024.

The mechanics behind amending a basis contract from September to December takes the spread between the two months into account to get the new contract value. With this we would look at the spread, or difference, in the futures market from September to December. Since the spread between these two months is a “Inverted Market” we would add that spread from your original basis value that was against the September futures. We can see that the spread is -15 cents from September to December futures. 

Since we originally locked in a basis value of -.10 against the September, if we amend this to the December futures for pricing this would turn your -.10 KWU4 basis contract into a +.05 KWZ4 basis contract. 

Ultimately the mechanics work to give you the same cash price if you were to set the futures on the same day from either futures month. What I mean by this is if you set you futures at $5.15 on a -.10 KWU4 basis contract the cash price would be $5.05. Similarly, if we spread your basis contract to December and set your futures at $5.00 using a basis of +.05 KWZ4 this would give you a cash price of $5.05 as well (so the same cash price regardless of the futures month you use). 

The ultimate goal by amending a basis contract is “buy more time” to set your futures because you think the futures markets will rally to a higher price and you can set them at that point. 

There is a cost to amending contracts, 2 cents per contract month is the costing structure. Given there is 1 contract month in this example we would have a costing of 2 cents to amend this contract under this example. This costing would be a separate line-item cost that would come off at the time of settlement of the contract. 

Please be sure to reach out to your local buyer, merchandiser, or manager to go over all the options that we have in our Columbia Producer Solutions marketing platform. In the next issue of the newsletter, we will go over amending BASIS contracts in a “Inverted Market Structure”. 

SOYBEANS

Joe Foley, Merchant

Soybean prices continue their grind lower with Brazil harvest nearing completion, Argentina harvest on the horizon and export activity for U.S. origin soybeans in seasonal decline. April cargos trading into China remain well over 1.00/bu cheaper than PNW offers. The much-anticipated prospective plantings and March 1 stocks report offered little in the way of any new bullish inputs. Soybean acreage intentions nationwide are pegged at 86.5 mln acres, just slightly above the trade's expectations, while March 1 on farm stocks rose year on year to 933 mln bu. The latter represents nearly a 25pct increase vs. last year. ND acres are projected to rise by 700,000 vs. last year and total March 1 stocks of 59 mln bu. are up from 39 mln bu. vs. a year ago. U.S. planting weather will be the main focus for future price direction, but lower prices are likely in the offing with carryout growing in the U.S. and S. American harvests in full swing.

CORN

Joe Foley, Merchant

Corn futures got a big, if not temporary, reprieve from selling off following the acreage and stocks report issued by NASS on March 28th. Projected U.S. corn plantings came in at 90 mln acres, well below last yr's 94.6 mln, and slightly below trade estimates. Similarly, March 1 stocks were reported @ 8.347 bln bu., which was less than had been anticipated. There was an immediate bullish response to those numbers, especially given the size of the managed money shorts in futures, but prices have settled back down since then. Nothing of any magnitude has really changed from a fundamental standpoint as the trade continues to project roughly 2 billion bu. carryout going forward. Perhaps we stay rangebound now with U.S. planting weather and the growing season before us. S. American supplies are expected to sharply curtail U.S. export activity July forward. Indeed, open sales are now exactly where we were a year ago @ 16.8mmt...3 weeks ago we were 3.3mmt ahead of last year. Look for choppy price action ahead, as the trade monitors weather in Brazil for finishing their winter corn crop along with planting pace and conditions in the U.S.

RED WHEAT

Rudy Weitze, Merchant

Red wheat futures continue their lackluster trend as bullish news remains absent from markets. The last 30 days have been choppy, with front month Kansas City futures gaining 15 cents and showing a range of 54 cents. Minneapolis hasn’t seen the same support with the front month falling 5 cents and showing a range of 50 cents. Between our abundance of global wheat, favorable weather, and the continued persistence of short funds it feels easy to bearish. On the week, funds find themselves shorter in both KC (Net 61,100 short) and Minny (25,000) short. 

Cash markets for HRW seem to be most interested in NC, which still looks to be in pretty good shape along the southern plains. We’re about 60 days from seeing the first harvest results and expectations for the crop are certainly higher than the last few years. For reference, Kansas is rated at 48% good to excellent (vs 16% GTE at this time last year), Texas is at 42% GTE (vs 18% GTE last year), and Oklahoma is at a whopping 73% GTE (vs 26% GTE last year). The only real question is what will happen to this large crop with the lack of Texas Gulf exports and stagnant milling demand. In our own backyard, Washington is at 51% GTE, Montana is at 57% GTE and Idaho is at 66% GTE. Things look good but rainfall has been a hair lackluster, and more moisture would be welcome. Millers don’t have much interest left in the OC and coverage looks good on the front end. Commercials are a little gun shy to sell NC milling wheat as producers have not been sellers and the protein figures to be an unknown. Nothing new to report for exports, we still can’t compete with Russian prices and despite us being cheaper off the PNW, no marginal business has come.

HRS has been much quieter as millers feel very covered up and producers are showing absolutely no interest as they begin to enter the fields. Spring wheat planting has finally begun with 10% of the crop already planted in Washington and 1% in South Dakota. Next week should see producers get into the field in North Dakota and the weather looks favorable to do so. When I say the spring wheat market is unengaged, it’s almost as quiet as I’ve ever seen. Millers have little interest in spot wheat and are willing to sit on their hands for JJ and NC. Farmers aren’t interested in this price level and have chosen to keep their hand in their pockets. Exporters seem content to buy wheat as needed and with the break in rail freight values they can do so with ease. All in all, spring wheat just isn’t having it right now. Despite all this lack of action, basis is falling and will likely continue to fall with expectations of an onslaught of wheat coming to town in the summer months. I’d encourage farmers to still take advantage of basis contracts and DP opportunities because spring wheat feels like a house of cards, and one forceful gust of wind (or round of farmer selling) is liable to take the house down. Please also look out for producer solution opportunities to extract premium vs the current market.

BEANS & PULSES

Matt Searcy, Merchant

PEAS

Rumors surrounding India extending beyond April BL continue to surround the market but India elections starting shortly adds more unknowns to the situation. New crop business continues to be undefined. Government remains on the sidelines from buying large volumes. This is causing yellow pea stocks to build within USA despite Canada being nearly empty.

LENTILS

The pricing spread between old and new crop continues to widen. Nearly record spreads between the two crops with old crop being nearly empty and new crop expecting to have nearly 50% increase in acres within USA. Demand has slowed with many buyers waiting for the finish of seeding before looking to put additional coverage on. In general, global market have been on holiday with both Easter and Ramadan, causing things to be a bit quiet.

CHICKPEAS

Ramadan demand was seen to be lighter this year and high price slowed a majority of current crop demand. USA acres are expected to increase 15% per the USDA prospective planting report.

DRY BEANS

Dry Bean markets have been somewhat of a mixed bag recently. Current crop pinto/black bean market has gotten weaker recently due to large contract volumes Dry Bean markets have entered the pre-planting spring-lull. Last week the USDA released the Prospective Planting report that showed the total US Dry Bean acres increasing 14% year-on-year. North Dakota is expected to plant 17% more dry bean acres than last year. The USDA does not define individual bean classes in this report but market estimates for North Dakota are, as a % of total acres year-on-year, Black Beans - up, Navy Beans – down, Small Red Beans – up and Pintos – down. 620,000 Acres planted in North Dakota is above the 5-year average. With all of that, there isn’t a seed in the ground today and mother nature will dictate future market opinions for the foreseeable future.

CANOLA

Sean Ferguson, Merchant

The canola market has remained choppy the past few weeks since the sharp run up in futures values in the early March; although, market has seen support pop up around the $630 CAD/MT mark. Chinese business has held steady off the coast of Canada the past few months. Despite this welcomed export business out of North America, we are still staring down the barrel of a decent carryout, even if exports continue at their current pace. Basis values have weakened as the grower has sold recent rallies and many crush plants have signed up needed nearby coverage. Like many other commodities, there are still many stocks remaining on farm in North America. If export business dries up in the old crop, the market could get ugly.

The CAD/USD has been firm the past 30 days following the uptick in crude oil values. The USD has been weaker as recent published economic figures have come out lower than expected. The CAD/USD is currently trading .741 the morning of 4/4.

INTERNATIONAL

Wiley Wang, Merchant

Global markets for US wheat continue to become quieter over the past two weeks. There were some spring wheat businesses done to Thailand and Philippines last week and Japanese tender this week; other than these, we haven’t seen any of the demands from other SE Asian destinations.

Corn market continue in the transition phase, with last week’s Taiwan tender fulfilled by Argentina corn at about 15 cents per bu cheaper than PNW offers. Expect these continue to happen and their price gets even cheaper going into more deferred months.

More talks of global weather transits from El Nino to La Nina in the middle of the year, which would benefit crop productions in the sub-continent and palm oil production in Indonesia. Again, all of these would add into the global stockpiles that continue to keep the lids on the grain and oilseeds’ prices.