ISSUE 117, February 23, 2024

CORN

Joe Foley, Merchant

Corn prices remain in a vicious down spiral with S. American harvests underway, carryouts growing, and the farmer in both hemispheres woefully undersold. There really is a tug-of-war ongoing between the U.S. farmer (long) and speculative funds / managed money (short). The latter has certainly had the upper hand, and prices likely continue lower without some sort of supply shock that today simply is not there. As of this writing, front month futures (ch) are trading at 4.12, which is down 40 cnts/bu in the last month. However, a look back at historical prices reveals that the prompt month futures contract has spent a significant amount of time near 3.50 (from 2016-2020), and those years had comparable stocks-to-use ratios. The market’s job, in theory at least, is to discourage marginal corn acres this spring in favor of other commodities with less burdensome fundamentals. Even lower prices for corn are the solution for that. More downside to prices is in the offing.

SOYBEANS

Joe Foley, Merchant

Soybean prices continue to grind lower as Brazil approaches 35pct harvested, their export prices remain far below U.S. values, and China remains a reluctant buyer of late. U.S. cash premiums have been relatively steady in the gulf, and pnw markets continue to be menaced by poor railroad performance, largely the result of insufficient manpower. Farmer marketings have actually accelerated some, as despite the recent selloff, there remains little fundamental support on the horizon to prices with projected carryouts growing for both this year and next. Potential catalysts for a meaningful rebound in prices include smaller than expected soybean acres for next year and/or planting issues this spring. The managed money (fund) short could make any potential rally that much more volatile, but for the time being the bears have been rewarded and near-term price direction likely remains headed lower.

WHITE WHEAT

Steve Yorke, Merchant

HARD RED

WINTER WHEAT

Justin Beach, Merchant

HARD RED

SPRING WHEAT

Rudy Weitze, Merchant

Spring wheat markets have been rather depressed as funds hold their short positions and bullish news has been absent. On the month, front month Minneapolis futures have fallen 22 cents and shown a range of 45 cents. The market looked like it was in freefall but found its footing around the 6.50 level and saw some technical resistance from there. Between the impending HRW crop on the plains, our lack of competitiveness in export markets, and funds still being short 25,000 Minneapolis contracts it’s hard to argue the path of least resistance isn’t lower. 

Cash markets feel slightly weaker as rail service has been on the mend (still in poor shape but improving). Nearby milling interest is abysmal as many are finding their pipelines full. Despite the lower futures, flour buyers just cannot seem to pull the trigger to fill in their demand for April forward. Both millers and flour buyers seem content with just sitting on their hands for the time being. Exports are steady but certainly nothing to brag about. Farmer movement has continued to pick up across our system and that seems to be reflected in the market with basis starting to weaken. Keep in mind the larger than expected spring wheat crop we had, and that there is still a sizable chunk of it to come to town. When it does, basis is liable to weaken in a major way. A great way to take risk off the table is to make a basis contract while also utilizing our new cash plus contract to extract premium in the market. Get in touch with your local originator to get more information. 

DURUM

Ryan Statz, Merchant

Stated previously, what was once perceived as a ‘supply problem’ is now a ‘demand problem’ and because of it, weakness continues for durum prices as the market seeks to find this demand. The market knows that because of the slow usage pace September – January, bushels are out there and with domestic and world buyers sitting pluggy, price breaks are needed to compete for every last piece of demand out there or to incent buyers to take on some additional length. Both are challenges as durum prices are still a hefty premium to other classes and/or other origins. 

Yes, there are dry pockets that exist in production areas throughout the world, but it is still early and the worry to cover hasn’t set in yet and likely wouldn’t until North American crops are planted, and the growing season sets in. 

BARLEY

Ryan Statz, Merchant

Simply put, the market is extremely saturated coming off its near record crop while also staring at a slumping demand picture. The two forces combined have wiped current and deferred markets off the table. Does this come back in the near future? Possibly, but it will be subdued and with it will come relaxed prices. Stated previously, this comes at a difficult time as seeding prospects are being analyzed. 

You’ll notice returns for barley point towards being less than favorable but there is a lot of murkiness in firm markets that will lead towards cautiousness. Undoubtably, the increased pessimism will make malting barley acreage forecasting challenging to say the least. The market knows the premiums that the industry is capable of, but we also know the recent challenges the market is facing in regard to sluggish demand and lots of supply stemming from last years near record crop.

Amending Hedge-To-Arrive (HTA) Contracts 

“Normal Carry Market” 

A topic that comes up very regularly at marketing meetings is Amending (rolling) contracts. I 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 Hedge-to-Arrive (HTA) contracts and how amending an original HTA contract would work in a “Normal Carry Market” .

When you initially sell grain using a HTA you are locking in just the futures side of your cash contract, you will set your basis at some date in the future giving you your ultimate cash price. Let’s say today is February 21, 2024, you are looking to sell some new crop Hard Red Winter Wheat using the HTA marketing tool and are looking at the September Futures (KWU4). Currently the market structure looks like this: 

So looking at the above structure you could lock in Harvest delivery (September futures KWU4) HRW @ $5.75 HTA Price (again you still need to establish your basis at some point before August 15, 2024) It is interesting to note that if you look at the current market structure this would be a “Normal Carry Market” meaning that the market is paying you more the further out the calendar you go. With that you can see that Kansas September 2024 futures are paying you $5.75 per bushel, while Kansas September 2025 is paying you $6.20 per bushel (so 45 cents more, or 45 cents in carry for 1 year). 



Let’s say we get to April later this year and the market structure for Kansas City Futures has changed and now look like this: 

In this market structure we are still in a “Normal Carry Market” but now you can see that the difference between September 2024 futures and September 2025 futures is 80 cents, so this spread has increased 35 cents from when you originally created your September 2024 HTA at $5.75. 

If we were to mutually agree to amend your existing September 2024 HTA that you created at $5.75 and amend that to September 2025 we would use the current market spread between the two months. Given the spread is a carry of 80 cents we would add the 80 cents to your original HTA price of $5.75 giving you an amended HTA from September 2024 to September of 2025 at $6.55. 

There is a cost to amending contracts, 2 cents per contract month is the costing structure. Given there are 5 contract months in this example we would have a costing of 10 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 contracts in an “Inverted Market Structure” to compare how that would look to this “Normal Carry Market” structure. 

BEANS & PULSES

Matt Searcy, Merchant

LENTILS

Activity has been steady in International Lentil trade for both old and new crop shipments. There are still several destinations that are needing more nearby lentils. New crop green lentils have been trading actively as importers look to extend coverage at cheaper prices vs nearby. Green Lentil return/acre for next crop far outpace other competing crops so all expectations of increased planted acres within US and Canada.

FIELD PEAS

Whole yellow pea markets have caught some attention in recent days as India extended tariff-free import duty for US/Canada. It’s unclear how much demand will result over the next 60-days but any demand is well received in a market that hasn’t seen sizeable USDA tenders to date nor strong Protein Fractionation economics.  

CHICKPEAS

Chickpea markets have been slightly more lackluster versus other pulses as of recently. Mexico is in the middle of their harvest; quality/yields very mixed reports at this point in time. It’s certainly not a perfect crop by any means. 

DRY BEANS

Not much new to report in the Dry Bean market the past several weeks. Warm winter weather in the Northern Plains has been very well received by processors who struggle to operate in the severe cold. Mexico continues to receive a record import program. Border congestion and the overall flow has improved the past 60 days post-embargos. The most focus has been in New Crop with US planted acres expected to increase and harvest space being in short supply. 

INTERNATIONAL

Shun Watanabe, Merchant

Chinese New Year kept the market quiet last week. With participants back after holidays, the market will be closely watching China’s next movement toward shrinking BRZ bean crop prospects and continuation of limited farmer selling to keep driving cash higher. Chinese crushers are still suffering from poor/negative margin, and their buying pace is still “Hand to Mouth”, only focused on nearby position. SAM weather is becoming less important to give market direction while cash markets/farmer selling will have a bigger impact going forward especially if the 2nd largest BRZ bean crop isn’t sold and/or the ARG farmer’s hoarding mentality persists in the face of the new government. BRZ bean harvest pace now at 32% done vs. 25% LY. BRZ bean crop estimates continue to fall 1-2 MMT from previous estimates even after a favorable weather pattern seen most of the month causing majority of estimates to fall between 145-155 MMT. The Rosario Grain Exchange lowered their ARG bean crop estimate 2.5 MMT to 49.5 MMT vs USDA at 50 MMT and BAGE 52.5 MMT. 

On the corn front, Korea tendered for a few May positions but mostly passed and what did trade was sold as optional origin. Furthermore, Japanese started to cover a few cargoes of May shipment ex-PNW and continuous interest from Central America related to Panama Canal issue. Not much change in the wheat export market that limited demand with regular buyers such as Japan/Taiwan/Korea/Philippines etc. (cheapest wheat in the world is Black Sea/Russian wheat). The continued drop in the wheat futures did prompt more requests from buyers for pricing updates, however, seems some buyers are moving into “waiting to pick a bottom” mode. Canadian CWRS offers continue to be well below our HRS values. 

CANOLA

Sean Ferguson, Merchant

The canola market continues its downward slide. Canola futures broke past the psychological support value of $600 CAD/MT on 2/2 and has since consistently traded below that mark. The canola export situation out of Canada continues to be ugly, exports through week 28 are lower 32% YoY, which continues to influence board weakness. Canadian canola is continuing to become more competitive as futures prices continue to slide compared to European rapeseed values, which is hopeful for exports; but keep in mind, it will take a dramatic pick-up in exports to round out the year to even get North America to last year’s export numbers. If nothing changes, we could be looking at a decent North American carry out for canola coming into this new crop year. 

Oilseed markets continue to keep a close eye on the South American weather situation. Any significant increase or decrease in production out of South America will have a material effect on all oilseed markets. 



CAD/USD has been holding in around the .74-.741 mark as crude values have stayed supported and the dollar comes out of its first full week of losses since the start of the year. 

SEED UPDATE

Keith Horton, Seed Division Manager

Columbia Grain is proud to announce the addition of our new Seed Agronomist Madison Fritz. She is responsible for agronomic support of growers and ensures high-quality seed production for CGI in Montana. In her previous role, Madison was responsible for all sides of seed production including contracting, inspections, and harvest support. She attended Montana State University for Crop Science and is also a Certified Crop Advisor. If she's not out in the field, she can be found on the ranch helping her husband with the cows.

This new position will enable CGI to support our producers from selecting the right variety at planting, assistance with in-season crop decisions, and planning their crop rotations for the year. As we inch closer to planting season feel free to reach out to your local elevator for seed pricing and variety selection.

SEED OUTLOOK

***Figures subject to change and these do not include potential crop insurance outcomes.