ISSUE 114, January 12, 2024

HARD RED

WINTER WHEAT

Justin Beach, Merchant

BEANS & PULSES

Ryan Van Pevenage, Merchant

DRY BEAN

There continues to be progress and regression with dry bean logistics as Laredo has now opened without requirements, however, Eagle Pass has a new embargo and is requiring permits. The situation at the border is worth monitoring, as shippers with railcars deal with demurrage and other issues due to congestion. The latest USDC Mexico crop report showed an update that the 23/24 fall/winter dry bean/chickpea crop is experiencing colder than normal temperatures, as well as prolonging drought conditions. The fall/winter crop historically accounts for 25% of annual dry bean production in Mexico. 

CHICKPEAS

Mexico’s chickpea crop is currently ~50 days in. The crop is estimated to be 188KMT according to USDBC, which is 38KTM larger than the 5-year average. It is expected that the U.S. crop will exceed Mexico’s production in 2024.

Indian Rabi crop is behind pace due to poor weather conditions but is estimated to finish seeding this week at 93% completed on Pulses. Total chickpea acres are expected to be decreased by slightly more than 10%. The decrease is seen in Desi chickpeas with Kabuli acres expected to increase 20% year to year. Planting in dry conditions has raised concerns because most of the water for Rabi crop comes from rain.

LENTILS

International Lentil markets remain firm due to lack of “market-ready” supply. However, India demand has stalled at this point. On December 26th, India announced they would import US Lentils duty-free until March 31st, 2025. While this is positive in nature, India can easily reverse this decision at any point if they feel necessary. European market is primarily bought for 2023 and has started negotiating 2024 crop. US Soil moisture levels have improved versus last year at this time but there are pockets in both US and Canada that are still in need of soil moisture prior to planting.

FIELD PEAS

USDA announced a 9000 MT yellow split pea tender last week, following the results of the prior week’s 5000 MT tender. The first US split yellow pea tender traded extremely cheap due to US pea fractionators struggling to maintain competitive with Chinese pea protein exports. The India Yellow pea trade has largely stalled out for the meantime leaving the US/Canadian market long peas, looking for markets.  

Green peas continue to find demand and pricing premiums, outpacing yellow peas with strong exports driving this trend. Aug-Oct 2023 green pea exports are more than 4x larger than that same period in 2022, with China being the leading overseas buyer. 

WHITE WHEAT

Steve Yorke, Merchant

DURUM

Ryan Statz, Merchant

As we turn the calendar forward, durum markets are faced with a few realities: 

1. Demand has been sluggish, both domestically and internationally. Throughout the Nov/Dec period, most believed demand would kick into jumpstart, but it just hasn’t. Domestic buyers purchased extended coverage early (Sept/Oct) in the midst of falling North American production and higher trending prices. International buyers who sat on the sidelines got bailed out by a huge wave of non-traditional supply that came onto the market from Turkey/Russia. Volumes were significant and buyers are plumb full. Now we sit and wait for these volumes to be used. The problem could be that volumes were significant enough to allow many buyers to wait until new crop supply from other world players to come online before they need more (Mexico).       
2. Because of the lack of grower participation, on-farm stocks are beginning to mount. In Canada, production was about 4.0 MMT with a 0.5 MMT carry in from 22/23 which led to a 4.5 MMT supply starting point. Through the end of December, producers have delivered 1.65 MMT of the available stocks to satisfy both domestic and export markets which is leaving about 2.9 MMT left to be marketed. To be a tight supply and demand environment, Canada will need to come up with another ~2.0 MMT of export business Jan-May (before Mexico new crop). Can this be done? As the clock dwindles, the market is feeling the pressure by the week. 
3. There is still a +$2.00/bu spread to DNS.  
4. US moisture profile has improved with recent snowfall in parts. However, Canada remains bare in many areas. Yes, it is only January, but it has some concerned. 

All in all, the trend has been lower and markets will need some jolt to push things higher…either that comes with more droughty concerns (would take more time) or a wave of unexpected demand to hit markets.

In the last issue of the newsletter, we recapped the yearly ranges and net changes that we saw throughout the calendar year in the grain market futures. Which really did paint the picture of the importance of getting in front of the market early as the volatility drives the futures markets erratically after seeing some historically high values earlier in the year. 

One tool that we have talked about before that we have available in Columbia Producer Solutions platform is the Ratchet Sell Order (RSO) .

Ratchet Sell Order (RSO): places an order to sell a set amount of grain below the current market price and acts as a safety net if prices fall. If the market does not fall to your below-market selling price, the RSO ratchets higher by your specified increment as the market moves higher. 

Let’s say today’s price for Soft White Wheat is $6.50, which you are happy with, but you also think the market is going higher and are willing to risk 20 cents (you specify the increment you are willing to risk, this can be any increment you would like it to be). You would place an order to sell 20 cents below-market at $6.30 with a ratchet function to “ratchet” the sell order up by 20 cents every time the market moves up by 20 cents.

To take the example a bit further, let's say today the Soft White Wheat price is $6.50 and you place an order to sell 5,000 bushels at $6.30 – tomorrow the market moves to $6.70, your ratchet order would move to $6.50 – the next day the market moves to $6.90, your ratchet order would move to $6.70 – the day after that the market moves to $7.10, your ratchet order now moves up to $6.90. If you see the market has moved from its original price of $6.50 to $7.10 and you are happy with selling your grain at the current market value of $7.10, you can cancel your ratchet order and sell at the current market price of $7.10. 



If, on the last move to $7.10, you do not cancel the RSO and sell at the current market and the market moves back to $6.90 the following day, your RSO is triggered, and you would sell 5,000 bushels at $6.90. 

A Ratchet Sell Order is a great tool to give you a safety net under the market while allowing you to participate if the market moves higher – be sure to contact your local merchandiser or buyer to discuss all your marketing options. 

BARLEY

Ryan Statz, Merchant

At the moment, barley markets are overly saturated which has led to falling prices for all. A big part of this is because of the recent railroad embargoes into Mexico which is where a lot of US malt barley ends up going. Simply put, product is not moving, and the pipeline is filling up everywhere which in turn is leading to sluggish demand from malting barley buyers. This situation is also affecting new crop programs. An unexpected shock to the supply chain is forcing many maltsters to re-forecast how much ‘23/24 marketing year inventory will be carried forward to the new crop marketing year (‘24/25). As such, new crop programs are slow to come out. We hope this changes soon.

As these programs do get rolled out (hopefully soon!), please stay in touch with your CGI representative about planting and marketing options that will ultimately add value to your operations and marketing plans. 

SOYBEANS

Joe Foley, Merchant

Soybean prices have been struggling under the pressure of better weather in Brazil and Argentina, along with the seasonal slowing of U.S. exports. Today’s USDA export sales were a paltry 280,000mt, leaving cumulative sales and shipments lagging last year by 7.5mmt (17%). Nearly all of the year’s shortfall is due to China’s purchasing of Brazil origin soybeans well into the U.S. crop year. In essence, Brazil is now competing with the U.S. in all twelve months of the calendar, and this likely will be the new norm with 155-160mmt yearly production down there. Recall Brazil was producing less than 100mmt ten years ago, and that increase has come directly at the expense of U.S. origin supplies. Domestic use in the U.S. has only increased 11-12mmt over that same period. Expectations for the all-important January WASDE report include a reduction of Brazil’s crop from 161 down to 155-157mmt, but perhaps an offsetting increase in Argentina and Paraguay production. Look for more choppy, but likely lower prices as harvest gets underway in Brazil and U.S. exports stay confined to our captive destinations.

CORN

Joe Foley, Merchant

Corn futures continue making new lows with better weather prospects in

S. America, which has been adding bushels to an already large Argentina crop. In addition, the better rains in Brazil bode well for additional safrinha acres compared to what had been expected a month ago. Argentina production is expected to rebound sharply from last year’s 34mmt drought-stricken crop to 55-57mmt. That increase will more than offset a forecasted decline in Brazil production, although the estimates for the latter are anywhere from 118-130mmt, as their winter corn crop has not even been planted yet. U.S. exports which had been experiencing a nice rebound from last year (up 8.3mmt or 38%) have also slowed as Argentina origin supplies have been undercutting our export demand in April and beyond. Barring a shocking surprise in the January WASDE, expect further weakness in prices as the U.S. carryout, in excess of 2 billion bushels, continues to weigh heavily on the market.

CANOLA

Sean Ferguson, Merchant

It has been an interesting past week as the oilseed market prepares itself for the USDA WASDE this upcoming Friday. All eyes will be on where the USDA pegs South American soybean production, specifically Brazil. Any swing in the soybean market will influence global oil values, which will influence canola seed values. Many traders are taking a risk off position as we enter this Friday WASDE. We will see if funds continue to let their record canola futures short ride through the WASDE tomorrow – regardless, we could see fireworks if a bullish soybean WASDE is printed. The NOPA crush report next Tuesday will give a good indication to the outlook of oil demand, which will influence seed values. 

 

Crush margin remains strong despite losses in the meal complex as oil values have increased. ICE canola futures continue its downward slide as canola exports remain close to 30% lower YoY out of North America. With the continued losses in canola futures, North American canola prices are becoming more competitive on a global scale, which is continued hope for exports to catch a bid out of North America. The CAD/USD is currently trading at .747 as of the morning of 1/11; the CAD has weakened alongside weaker crude values and the US dollar has gained strength as higher than expected CPI print out of the US.

SPRING WHEAT

Rudy Weitze, Merchant

Spring wheat markets are focused on logistics with rail delays and winter weather making shippers nervous on contractual performance. For the month of January, front month Minneapolis futures have struggled, falling 11 cents and showing a range of 21 cents. The March contract continues to find support around the 7.00 dollar level, but it’s going through an identity crisis and it’s looking for direction. Bullish and bearish news has been absent from the market, but so has persistent volatility. The commitment of traders report showed little change to the funds short position, which still sits at roughly 27,000 net short.

Cash markets have been hot and cold depending on logistics and location. Mills seem to have good coverage in JFM and are buying spot wheat as needed. Despite the lower futures, mills have reported that flour sales for April forward are lacking. With slow farmer movement and contracting, we’re essentially seeing a game of chicken between the farmer and the flour buyer. The question is who will move first, and a rally or a slump from this Friday’s report could answer it fast. Exports markets are steady but we’re not seeing any non-typical business off the PNW. Values for CWRS FOB Vancouver have firmed up and with any luck that’ll help to push some business to the US. I’d continue to stress the use of a basis contract to lock in current basis levels. Millers, flour buyers and traders all seem to have the same belief that spring wheat basis is likely to erode once farmers start selling and moving wheat. Consider using a producer solutions product with a basis contract to extract premiums versus current futures values. 

INTERNATIONAL

Shun Watanabe, Merchant

In the beans world, we have not seen any significant buying interest in the last couple of weeks as Sino seems covered for now and Brazil CNF for January being offered at $10/mt discounts to PNW. China bought about 12mln MT of US Gulf and 9mln MT of PNW so far this year from US. vs. LY 16mln MT Gulf / 10mln MT (5mln MT less same time LY). SAM weather continues to give market direction. The first week of the New Year began under pressure reacting to ideal SAM weather. It’s still uncertain if the late finishing rains in N. Brazil are coming too late to help majority of the crop, leading to wide discrepancy on Brazil crop estimates. CONAB released their January estimates for corn and beans production this week with beans at 155.3mln MT & corn at 117.6mln MT (vs. last estimates beans 160.18mln MT / corn 118.5mln MT). Moving on to corn, we are starting to see the Asian markets come back after the holidays. Korea held the tenders for Mar/Apr positions and suppliers started pricing basis Arg and Arg only option into these tenders. The sentiment in the market is Arg weakness/overall bearish nearby basis. The rest of the market is pretty much in a standstill ahead of the USDA report on Friday. China had been very lackluster in terms of demand and it’s not very surprising given the pressure in local corn situation. Not much change in the wheat export market that limited demand with regular buyers such as Japan/Taiwan/Korea (cheapest wheat in the world is Black Sea/Russian wheat). Canadian CWRS offers continue to be competitive against our HRS values.