HRSW futures diverge from cash market

Quality premiums, discounts | Some buyers are low-balling while some are offering top prices for small amounts

What’s quality wheat worth?

These days you don’t get much of an idea from looking at Minneapolis Grain Exchange hard red spring wheat futures, analysts acknowledge.

It means farmers have to do more legwork to find out the value of what they have in the bin.

“The futures keep dropping, but guys are seeing (much higher prices) for 13 percent protein (from buyers,)” said Kyle Sinclair of the Agfinity online marketplace.

Farmers are dealing with both dropping HRSW futures and reports of premiums for quality spring wheat.

Basis levels are all over the place, and it’s hard for farmers to determine the real, contemporary price of good spring wheat.

However, no one denies that quality wheat is worth much more than the futures indicate.

“Basis levels and cash bids are doing most of the heavy lifting,” said Jon Driedger of FarmLink Marketing.

HRSW futures trader Austin Damiani of Frontier Futures said the Minneapolis contract has lots of specifications, but it is set up in a way that allows lots of wiggle room.

“There is a protein requirement, but the other requirements are pretty loose in terms of the colour, the falling number and some of those things,” said Damiani.

Driedger said the penalties on some specifications are light enough to encourage some to consider delivery against the contract, particularly in a year like this with big cash market discounts for quality damage.

Worried buyers and long position holders might liquidate to avoid the prospect of being forced to accept delivery.

“You might be setting yourself up to have some (poor) crop delivered against you,” said Driedger.

“That increases the selling pressure.”

Chuck Penner of Left Field Commodity Research said HRSW futures often get dragged along in the vortex of general crop prices movements, so with corn and other wheat classes slumping, spring wheat futures can follow without regard to the physical situation.

“Everyone’s dumping on those markets right now, so it’s hard for anything to turn it,” said Penner.

That leaves farmers with the tough task of determining what the real value of spring wheat is now. Futures aren’t a true gauge, and basis bids vary widely.

Sinclair said he tells farmers to look for the price that most buyers are willing to pay. Extreme bids on either end don’t make a lot of difference.

“I see the market price as the price where the majority of the buyers are,” said Sinclair.

“There are always going to be guys low-balling and trying to make a lot more margin on it, or they don’t need it … and there are buyers that come in suddenly above it.”

Some elevator bids can seem too good to be true, but they can be real, if only for small amounts of grain,” said Jim Beusekom of Market Place Commodities.

That doesn’t mean it’s a “market price,” he added.

“Every bid has a price and an amount.”

The bid can disappear once that small order is filled, and the buyer will then drop the posted price by dozens of cents per bushel.

Farmers need to act fast to get the best bids, but if they miss one, they can wait for the next to appear because it will likely come within days or weeks.

An end user who needs good quality wheat might have to tell a grain company to pay whatever is needed to fill the order.

“If a guy has a limited call list to source from and all those (farmers) are saying ‘No, I want more,’ it’s just a matter of time before that buyer caves and says, ‘I’ll do what I have to to get it,’ ” said Sinclair.

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