MERCANTILE Blog: MarketInsight April 24, 2017

Marlene BoerschMarket Insight

Sprg.Sdg.2

Major grains & oilseeds markets

Corn, wheat and soybeans all ended up lower for the week.

Funds, including Index Funds, were sellers of everything. On wheat, spec funds added another 7,667 contracts to their net short position in Chicago Wheat Futures and options.  The StatsCan report forecast all wheat acreage for the upcoming marketing year at 23.18 million acres, which would be down just slightly from last year, but spring wheat intentions up at 16.66 million acres, higher than expected. Spec Funds also increased their short position in soybeans starting on Tuesday. The StatsCan report showed Canadian canola producers intending to plant 22.39 million acres, higher than most expected and 9.92% larger than last year. The report also showed intended Canadian soybean acreage increasing 27.47% yr/yr in Canada to 6.96 million acres. Drier weather is in the short term forecast for most of the corn belt, with the 6-10 day forecast showing a potential for wetter conditions.

We are into weather watching now, with the Funds clearly nervous about the current conditions and outlook in the US. The wet and cold outlook for the Midwest and northern Prairies is worth watching. Argentine weather is expected to improve after the rains end on Tuesday while Brazil weather is good for crops.

Soybeans

  • CBOT beans and meal recovered Friday, but still ended down on the week.
  • Bean weakness came from slowing exports, from sharp losses in China, and from the NOPA crush which at 153 million bu was below both expectations and last year, and which once again called the USDA’s annual number into question.
  • Improved Argentine weather was also negative, as was talk of more US spring wheat acres switching to beans.
  • Then there was Friday’s StatsCan report increasing Canadian canola and soybean acres.
  • The soy complex remains a function of Argentine weather, US acreage/weather and Chinese demand, to which can now be added ‘biodiesel politics’ with a potential significant impact on product share.

Canola

  • ICE Canada canola contracts were mixed on Friday, with post-report spreading a feature. Nearby months are clearly supported by tight current crop supplies and farmer holding. Matif rapeseed ended higher as well as the cold weather threat offset the higher €uro and lower CBOT.
  • The component value comparison with soybeans is still supportive of export sales for canola, especially for the nearby month.
  • The StatsCan acreage report on Friday morning forecast canola acres at a record 22.4 million acres. Given a decent growing season, 22.4 million acres of canola would ease the canola balance sheet considerably. Given unchanged exports and domestic use, ending stocks would rise to ~3.2 million mt, the highest on record we believe, and a stock-use ration similar to 2014/15. 

Wheat

  • Per StatsCan on Friday, Canadian acreage seeded to spring wheat is forecast to increase by 8.2% (+1.3 million acres) to 16.7 million acres (from 15.4 million acres last year). This is significantly bigger than the trade was expecting. Total Canadian bread wheat was pegged at 18.14 million mt, with the trade guess at 17.4 million mt.
  • Agriculture and Agri-Food Canada (AAFC) raised their total Canadian wheat stocks estimate for the 2016/17 crop year to 7.3 million mt from 5.2 million mt last crop year; a 40% increase in wheat ending stocks.
  • But concern is growing in the trade that ongoing cold temperatures and snow could push seeding dates in Canada well beyond ‘optimum’ seeding dates.

Durum

  • StatsCan forecasts total Canadian acreage seeded to durum to drop by 16.9% (-1 million acres) to 5.15 million acres (from 6.2 million acres in 2016).
  • This acreage was a little higher than expected by the Canadian and international trade (5.0 million mt).

Barley

  • In Canada, StatsCan is forecasting barley acres to fall by 8% (-510k acres) to 5.88 million acres, back to 2014 acreage levels. Saskatchewan and Alberta are losing 226k and 250k acres, respectively. Manitoba is expected to lose 40k acres of barley. The trade expected 6 million acres of barley.
  • There was no change to either S Hemisphere Fob values or Canadian cash values. Canadian barley remains uncompetitive in export markets and remains a domestic affair.

Peas

  • At 3.99 million acres (-5.9% from last year), the StatsCan acreage number for peas was one of the less controversial items, because traders has been oscillating between +5% and -5% acres from a while, depending on what India was doing to the market. The trade’s pre-report estimate was at 4.3 million acres (+1.4%), so there had been a positive bias to pea acres.
  • Since the acreage shift for peas is not very big, the effect on the balance sheet is also contained.
  • We think that the bigger variance with the Mercantile numbers still is the difference in opinion about this year’s size of exports. We think that the StatsCan/ AAFC pea export number for 2016/17 at 3.2 million mt is way too small.

Lentils

  • At a projected 4.385 million acres, StatsCan acres for lentils show a very big drop from last year of 25.2%; a full 1.5 million acres! Looking at contracting pace, we are still skeptical that the acreage reduction will be this large; on the other hand, it still would be 9% bigger than the 2015 lentil acreage of 4 million acres. The pre-report average trade estimate for lentils was at 5.1 million acres, a little higher yet than the early Mercantile estimate of just under 5 million acres.
  • The effects of such a big acreage reduction would be profound. The balance sheet below shows both a 15% and the 25% acreage decline. Ending stocks change from just under 800k mt with a 15% reduction to only ~300k mt given a 25% reduction. Taking into account the quality of this year’s carry-in, this would represent a pretty tight balance sheet for next year.

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