ISSUE 118, March 8, 2024

BARLEY

Ryan Statz, Merchant

Subdued markets and lackluster interest have made barley markets frustrating at best. The fundamentals remain; declining malt demand, poor logistics, and burdensome barley supply have all pressured market prices and demand of any kind. Quality flexibility has also frustrated market participants. In years past, the tighter supply has opened flexibility avenues as the ‘beggars can’t be choosers’ mentality existed… however, this year with the heavy supply, buyers are very focused on getting top notch quality as they know other bushels are out there to grab. Thus, they aren’t taking any chances on so-so quality.

Going forward, 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.  

DURUM

Ryan Statz, Merchant

Durum prices have retreated as the market fears demand opportunities to be waning. Without this increased demand, carry-outs will be burdensome heading into a newly competitive landscape next year. As many know, Turkey has been a major surprise player this year. As Turkey has never been a factor in international Durum business previously, they have come onto the market in a major way…thus far into the marketing year, exports have been nearly 1.4 MMT from Turkey alone. This ‘new’ supply has completely negated the drought reduced supply in North America. With ‘non-traditional’ supply coming onto the markets in a big way, world dependence on North American durum hasn’t been felt. As world supply dwindles waiting for new crop to come online, North America has a few months to step on the gas pedal with aggressive offers… if they don’t, other world supply will step into the fold again June/July.

The million-dollar question will become, is Turkey back in the mix again next year or not? Food for thought, acres were up in Turkey 10-15% and growing conditions remain favorable… it makes one think that ‘23/24 wasn’t a one-time thing for Turkey, and they will be back for more in ‘24/25.

Amending Basis Contracts 

“Normal Carry Market” 

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

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 a “Normal Carry 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 March 21, 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 March 21st. 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 “Normal Carry Market” we would subtract 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 -.25 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 $5.00 on a -.10 KWU4 basis contract the cash price would be $4.90. Similarly, if we spread your basis contract to December and set your futures at $5.15 using a basis of -.25 KWZ4 this would give you a cash price of $4.90 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”. 

WHITE WHEAT

Steve Yorke, Merchant

CORN

John Stich, Merchant

Corn these past two weeks has followed an upward move both on Futures and Basis values. Despite having a 2.2-billion-bushel carryout for the year we have rallied some 40 cents a bushel from contract lows set earlier this month. The culprit for this move has been the short covering of an oversold position for the large managed money accounts. Seasonally this is a good time of the year to cover shorts or even initiate a long position until we see a crop planted and growing. Currently there is very little weather premium built into the corn futures and the market will be susceptible to upward moves until crop progress is noted. The average acreage guess for U.S. corn this year is currently 92.5mm acres. This is a slight down tick from 94.6 mm acres planted last year. Thursday March 28th, we have a USDA report on both estimated planting intentions and quarterly stocks. Our weekly export sales have been running a respectable 1.2 mm metric tons a week. Basis values for the PNW export market have rallied 10-20 cents a bushel over the last couple weeks due to Rail freight logistics issues. I would look for the current March to First half May values to set back some as the railroads catch up on country commitments. Brazil did see some very slight corn planting delays due to rain but nothing that would affect the markets.

SOYBEANS

John Stich, Merchant

The soybean market has been very quiet lately. The PNW export market has gone away due to the Brazilian harvest. They are currently about 70 percent harvested. U.S. planting intentions are estimated at 86 mm acres which is an increase from last year’s 83.6 mm acres but still a long way from the record 90.2 mm acres we planted in 2017. The first official estimate and quarterly stocks will also be on next Thursday’s USDA report. There is still strong US demand domestically for soybeans in the direction of bio diesel and decent meal demand. We export soybeans in the form of frozen pork products in addition to bulk meal and bean vessels. Overall, soybean meal exports are up 8 percent from last year. I would look to sell rallies on the board as basis values really have nowhere to go. From an export perspective we continue to plod along at a pace that is 19 percent behind last year’s 1.8-billion-bushel mark. With Brazil increasing production each year, and a sensitivity to her deforestation by some importers, we could see a shift back to the U.S. for some business in the years to come.

INTERNATIONAL

Wiley Wang, Merchant

International buyers continue to demonstrate plenty of patience to wait to buy for their demand. Everyone understands there isn’t any crop or weather stories going on at this moment, and all major grain producing countries are carrying more grain than needed. We, as exporters off the west coast, are about to enter a long period of time which traditionally slows down significantly from now to end of summer.

Major cancellations of some of the wheat purchases happened recently, again is good indication that the destination markets are probably not looking to add more anytime soon.  Some of the European mid to low protein wheat sellers lowered their prices to attract some volume, which continue to displace our wheat.

Market sentiment has been on the brighter side in China, especially in the oilseeds crush sector. It is resulted from lowered imports, so the margin responded. This might take quite some time before they begin to rebuild their importing pipeline which should be primarily from South America. November is still a ways away, but some trade analysts already begin to talk about the impact on major trade relationships from the coming election—at this point it is not just hypothetical since we had a rehearsal not that long ago, so we need to watch out for new crop marketing since the window might be much shorter.

HARD RED

WHEAT

Rudy Witze, Merchant

Red wheat futures have been adrift at sea and are basically treading water. For the month of March, front month Kansas City futures have fallen 10 cents and shown a range of 37 cents. Minneapolis has been even tighter gaining just 2 cents and showing a range of 35 cents. News that would typically move futures markets has been absent and it’s incredibly hard to be bullish at this time. Between the general uncompetitiveness of US wheat, exceedingly cheap Russian wheat, and short funds, it’s easy to believe the path of least resistance is for the market to go lower. Funds are still short every class of wheat, as well as corn, soybeans, soybean meal and soybean oil.

Spring wheat cash markets have fallen as farmer movement has picked up. Nearby basis remains elevated but deferred months, particularly June/July, have been weaker. Millers are anticipating farmer movement will pick up in that timeframe and are bidding it with that opinion. Coverage on their end looks relatively good on the nearby but they are still buying spot to fill some holes. Exports have been slow as the spread between US and Canadian wheat has widened. To compete with CWRS, basis will have to drop and rail freight performance will need to improve. The big talk among the trade has been relating to acres, on which there are mixed opinions. Some believe that acres will be higher based on the slip in corn/bean futures, but others believe that wheat will just continue to lose acres to corn and beans as well as specialty crops. I imagine that both ideas are correct and that it’s liable to be regionally specific.

Winter wheat cash markets have also been weaker as farmers have been cleaning their bins and elevators along the plains are making space to prepare for a large harvest. As it stands right now, Oklahoma, Texas, Colorado, and Kansas are all looking down the barrel of sizably larger crops than last year. Soil moisture has been good, rains have been timely, and fertilizer is moving for top dressing. The big question for those areas is where the wheat will go. Based on Russian wheat prices, it’ll be hard to imagine the Texas Gulf picking up. Luckily, they have plenty of space to fill after two poor crops so harvest movement may not be a huge problem. In our own backyard, things have been dry and as wheat comes out of dormancy, we’ll need to start seeing some rain. Crop conditions are better than last year, but we’ll have to see if it holds. Weather maps are not as friendly to MT and the PNW and it looks like getting moisture could be an uphill battle. PNW exports have been poor and there doesn’t look to be much light at the end of the tunnel. Milling demand has been solid and flour buyers have good coverage on the nearby. For both HRW and HRS, we’d stress the importance of continuing to look at basis contracts. These could be combined with our new Cash+ contract to pick up a premium vs current prices.

CANOLA

Sean Ferguson, Merchant

The canola market has rebounded the past few weeks off the heels of higher oil values. Palm oil leads the charge with significant demand from China/India coming into the market, as well as continued demand out of the US. Both nearby Chicago soy oil and Malaysian Palm oil were up roughly 8.5% from the start of the month, which has pulled seed values along with them. Canadian grower deliveries are still low compared to both last year and the 5-year average. Exports off the coast of Canada have been decent over the last month; although, with the increased pace of exports, the carryout is still at risk of being large which would keep a lid on prices.

The CAD has been firmer recently over hawkish sentiment from the Bank of Canada – this can put pressure on Canadian exports and could affect ICE canola values if the CAD continues to exhibit strength relative to alternate currencies. The CAD/USD is trading at .739 as of the morning of 3/21.

BEANS & PULSES

Matt Searcy, Merchant

LENTILS

Have seen a seasonal pause in demand as buyers await to see seeding intentions and demand within local markets. Current crop has seen unprecedented values and demand continues to stem strength in opportunities. India has not slowed efforts to purchase as their local tenders continue to reject red lentils as replacement for green lentil and Tur tenders.

CHICKPEAS

A lot is happening, yet nothing is happening. Ramadan has begun, India and Mexico are both in harvest, yet demand continues to still be slow. Harvest pressure from both these regions is depressing values. Conversations surrounding yield in both areas have plenty of controversy and little truth to either side has been proven.  

PEAS

All eyes continue to be on India and how they will treat the allowance of yellow peas on a month to month basis. USDA continues to be on the sideline depressing domestic values. Green peas finding tighter stocks coming into the spring and importing countries still find themselves with open demand. 

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 executing. The Mexico Winter crop is wrapping up harvest currently and putting pressure on the market. The US New Crop market has been very quiet the past 30 days as well due to end-users bit off coverage prior and are now more patient to watch spring weather before buying more. Spring weather forecasts across the northern plains should allow an earlier planting start date.