MERCANTILE Blog: MarketInsight Jan. 16, 2017

Marlene BoerschMarket Insight

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Major grains & oilseeds markets

The markets were generally stronger last week following a period of Holiday doldrums and the WASDE report that was somewhat-bullish. The WASDE report was interesting – but some feel that the USDA underestimated demand. Managed money/funds reportedly were good buyers of wheat and soybean futures last week.

Cash trade was still quiet with only some Middle East wheat trade reported. We do not expect much from the Far East until the Chinese New Year celebrations are over, likely during the first week of February. The US Markets are closed this Monday for Martin Luther King Day.

Weather problems caught the attention of the trade, with too much rain in Argentina and very cold weather and heavy snowfall in Europe.

Soybeans

  • The WASDE report was interesting; in our view the USDA domestic US carryover estimate is too high, and if funds keep their long positions, the market will probably stay firm. We will update our balance sheet in next week’s edition.
  • The market rallied back above $10.00; reportedly due oversold technical conditions and it uncovered some support via positive inputs found within the WASDE report.
  • Funds reportedly were good buyers in the soy complex and have taken their overall long positions back to 50 myn tonnes long (per the supplemental positions report).

Canola

  • In week 23 producers delivered 397,000 tonnes of canola, domestic use was 151,000 tonnes, and exports were 177,000 tonnes. The visible supply is at 1.5 myn tonnes, so while deliveries continue at this pace there is little incentive for the elevator companies to narrow the “basis”.
  • Crush margins continue to be in excess of $100.00, and it seems the export elevators want to earn the same.
  • Exporters have increased their offering prices, so they are aware that stocks by the end of the year will become tight.

Wheat

  • In the January 12 USDA report on US wheat, planted acres were shown lower, while ending stocks were adjusted 43 mbu higher. HRW stocks were 14 mbu higher, and SRW stocks were 27 mbu higher, but HRS tightened stocks by 3 mbu.
  • To elaborate, the USDA US winter wheat number warrants attention. It came in at 32.8 million acres, which is down 3.8 million acres or a significant 10% lower than last year’s winter wheat. It is the lowest winter wheat acreage since 1908, and is smaller than anticipated by the trade. Most of the US acreage cut was in HRW acres in the Plains.
  • We note that spring wheat values have gained a lot of ground since mid-November last year. Dark Northern Spring wheat values in the Pacific Northwest in the US (PNW) are showing very good values. We would like to see the Canadian trade sell into the higher markets.

Durum

  • This week’s Durum sale to Tunisia about C$315.00/mt or C$8.57 per bushel Thunder Bay.

Feed Grains

  • The WASDE report slightly reduced the corn carryover estimate, and rains in Argentina caused some harvest problems. We do not see anything particularly bullish here, and expect corn to trade in a narrow range and to follow wheat for direction.

Peas

  • The very steady good demand for yellow peas has pushed Canadian domestic buying to the $9.00/bu level to allow buyers to keep up with shipments. We expect yellow pea markets to remain firm.
  • New crop bids for yellows range from $7.75-8.00/bu.

Lentils

  • There were new crop red lentil contract prices available last week at $29/cwt. This was significantly better than the $27/cwt quoted elsewhere, and this level is not at all a bad sale for new crop reds.
  • Current crop green lentil prices remain very firm for shippable product based on the simple fact that there is not much shippable product left. This market will stay highly priced, buy we would still start getting sold out on old crop greens, because at some point sellers will turn away because it is too hard to get viable offers.

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