Major grains & oilseeds markets –
The markets continued to move lower as funds continued to liquidate their long positions, while reports of good South American crops, a bearish IGC report, and Chinese cancellations of US soybean purchases also served to pressure prices. In recent weeks index funds and large speculators have sold over 30 myn tonnes of futures.
Adding to the bearish picture is producer selling, and financial market disarray is making the economic outlook difficult to forecast. There was an election in Greece this weekend, which depending upon who wins could put additional pressure on EU markets.
This is not a good climate in which to hold large positions.
Soybeans – The market continues pressured by Chinese cancelations and by fund selling. Speculative funds were good sellers again last week and now have a net short of 6 myn tonnes of soybean futures. Index funds are on the other side, long 17 myn tonnes and getting badly hurt.
Canola – The canola market doing its own thing; it is primarily stronger in Canadian dollars as the currency continues to weaken against the Greenback. The crop is well sold so we can expect canola to hold at a premium to soybeans rather than trade at its normal discount.
We have not heard of any new business recently. The AAFC increased their estimates of exports to 9.4 myn tonnes which we don’t think is possible basis supply; the highest trade estimate is around 8.5 myn tonnes of exports leaving a carryover of about 1 myn tonnes – which is about the minimum required before new crop becomes available.
Flaxseed – $14/bu is being paid for current crop flax, which is an excellent price. Next years’ flax acres in Saskatchewan are again expected to be up by as much as 30% by some this summer. AAFC anticipates a more moderate 11.2% acreage to 1.73 mln acres. Given the anticipated acreage increases in flax, new crop producer bids at $12.40 with AoG are not unattractive.
Wheat – The wheat market was very slightly lower on the week. The firm $USD provided much of the price resistance, US weekly sales improved and are now slightly ahead of the average pace versus the annual USDA target estimate for the season, and in the futures the funds appeared to be modest net sellers (reducing their still net long positions), per the CFTC supplementary positions report. The nearby export tender lineup meanwhile looks a bit skinny in our view.
Russia meanwhile is still busily rattling its sabres by firing rockets in Ukraine while using its troops clandestinely there at the same time, but the rest of the free world appears to mostly be ignoring Putin, and the global grain market by extension doesn’t seem to be missing Russian exports at current.
Chinese growth meanwhile is slowing to a point where some fear that they are perhaps soon due for a hard fall – given their reliance upon exports of cheaply manufactured products. The falling Euro has meant EU grain/wheat is now more competitive for export, and there are sizable amounts of Balkan, Baltic, and German wheat on offer. Though US wheat was at least recently on the cusp of competitiveness against export tenders, the continuing surge of the US dollar versus the relatively weak Euro has put sellers of German and French origin back in the driver’s seat for now.
– There are no serious crop production issues facing current global crops. The EU is facing increased carryover stock risk. With German wheat priced the cheapest in the hard wheat markets (and French in the soft), it doesn’t look as if the global trade is missing Russia at present. The large supply of global feed grains this season provides overhead price resistance. IGC forecast ending 14/15 global grain stocks at 30-year highs of 432 myn mt, 3 myn mt above their previous estimate and is due their increased global corn output estimate relative to declining corn use during the same period.
Durum – Looking forward, 2015 EU area is expected to increase, the desert durum crop is due in the late spring – as is EU and African durum as well, forward US area will grow, and buyers are now rationing supply ahead of that point. AAFC estimated global 15/16 output will gain 3.7 myn mt to 36.0 myn mt due higher area and a return to trend yield. Carryout increases a modest 200k mt to 4.3 myn mt. Though we expect additional risk of price declines, at least carry remains fairly tight on a historical basis. We’ll see how the market reacts to coming spring area estimates.
Barley – The Canadian domestic price basis Lethbridge declined $2.00 on the week. In our view Canadian feed barley still offers value to domestic consumers and could rally modestly due supply tightness.
Peas – Supported by ongoing demand, decreasing supplies (especially yellow peas), and a very weak Canadian dollar (FX is .8017 this morning; due to very low crude oil prices: $45 this morning), both old crop and new crop pea prices have moved a touch firmer than last week.
New crop grower values have also improved to $7.30/bu in SK and $7.50/bu in AB. We think the market would warrant a bit more, but there seems to have been good farmer selling at these levels especially in Alberta, allowing companies to cover the new crop sales they have made to date.
Lentils – We generated a first 2015 crop lentil balance sheet last week. Mercantile expects roughly a 10% increase in area at this early stage. Combined with a 5 year average yield and assuming decent growing condition this year, this would result in a crop that is 19% bigger than last years’ production. Even given a small carryout his year, this scenario still would put lentil supply 19% ahead of last years’ supply; a much bigger supply increase than we expect for peas.
Transportation – Primary elevator stocks have grown as railroads reduce car supply…
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About the Authors
Marlene Boersch & Anthony P. Temple
Marlene Boersch (MSc Ag.Econ.) & Anthony Paul Temple bring 70 years of experience and insight into the global world of agriculture to Mercantile. The strength of their company is derived from their practical expertise at senior levels in the grain industry within Canada and abroad. Their combined background provides the partners at Mercantile with a unique knowledge base, distinctively applicable expertise, and with exceptional connections to Canadian, U.S. and overseas customers