MERCANTILE Blog: MarketInsight Feb. 27, 2017

Marlene BoerschMarket Insight

Mearsk Cntr ldg

Major grains & oilseeds markets

It was a big week for wheat trading. Nearly 1 myn tonnes of cash wheat traded primarily to Middle East destinations, where North American wheat continues to be uncompetitive. Prices were marginally better than of recent.

The USDA’s Outlook conference pegged wheat acres at 48 myn acres against trade guesses of 48.9 myn acres. Last year acres were 52 myn acres. They forecast corn acres of 90 myn acres compared to this year’s 94 myn acre and 1 myn acres less than trade estimates. The USDA estimated soybean acres at 88 myn some 4.6 myn acres more than last year. Trade estimates of soybean acres were 87.6 myn acres. The corn/soybean ratio is now down to 2.55. Yields of course can be highly variable so it’s too early in our view to have a definitive opinion on next year’s Supply/Demand today.

Speculative Funds sold 5.1 myn tonnes of corn and soybeans on the week. It has been 4 weeks since we saw Chinese registrations with the USDA of any US soybean purchases, which suggests their purchasing is now switched to Argentine/Brazil origin.

CBOT futures are sharply lower closing in on first support levels.

Soybeans

  • Large Fund position in SBN’s.
  • Chinese buying switching to South American soybeans.
  • We view USDA’s number for new crop SBN’s as bearish.                                                    

Canola

  • Growers delivered 406,000 tonnes in week 29. Exports were 159,000 tonnes and domestic usage was 171,000 tonnes. Total usage through week 29 was said to be 11.27 myn tonnes compared to last year’s 10.2 myn tonnes.
  • Canola product value continues to make canola an attractive crush for the EU and China.
  • The slow railcar supply is keeping the “basis” weak but it should improve as spring advances.

Wheat

  • There is plenty of wheat against tepid demand, except for high quality product.
  • There is still an old crop wheat surplus and new crop wheat so far looks good.
  • However, the fact that the US could lose more spring wheat acres may be a break for Canadian spring wheat growers for next crop year.

Durum

  • Durum exports during week 28 amounted to 28k mt and 2.3 million mt year-to-date. This is 16% or 457k mt lower than last year-to-date.
  • AAFC lowered their seeded durum acreage for next crop year by 20% to 5 mln acres; harvested acres dropped by 17% to 4.9 million acres. Mercantile expects harvested durum acres to fall by 15%.

Barley

  • Canadian barley continues to be competitive against the huge Australian crop, which is being offered at $155.00 FOB as feed.
  • Australia is also offering cheap malting barley to the EU and China.

 Peas

  • Pulse prices generally have come under pressure for the reasons we have explored in the past several issues of this report, so there is little new to be added to the fundamental reasons of the change in sentiment.
  • There should be little immediate impact by these developments and expectations because we have long advocated being sold old crop pulses and fixing new crop values as much as possible.
[Pls see our Mkt Commentary re. updates on India!]

Lentils

  • Lentil prices have deteriorated further for all the reasons mentioned earlier. Most of these factors are related to developments in India.
  • We note that the demand for lentils in other countries has not changed; indeed, it has gone up as we have shown when the latest export data became available.
  • But because of India’s sheer market size, the moderation of Indian pulse buying puts other importers at ease as well: Buyers are no longer anxious that the market will run out of lentils and are less likely to secure lentils for deferred positions.
  • There were lots of good sales opportunities this year. If not done so, we would finish old crop sales and fix new crop values, though it may be too late to sell any new crop volume.

 [If you are interested in more background intelligence and our supply & demand balance sheets, pls contact Mercantile]