MERCANTILE Blog: MarketInsight Jan. 23, 2017

Marlene BoerschMarket Insight

trainlr

Major grains & oilseeds markets

Funds were the feature of the Futures markets last week buying close to 18 myn tonnes during the week. Funds now own 104 myn tonnes of Futures grains and oilseeds.

The markets are inverted illustrating the strong nearby demand for US grains and lack of sufficient nearby supplies.

Still no new business reported to China as New Year Celebrations continue. Soybeans were helped by reports out of Argentina that rains had substantially lowered that countries soybean crop. Corn followed soybeans to the upside we could have a bullish weak in wheat coming if we break through resistance.

The inverse in markets is creating stop loss buying and creating strength when the balance sheets are not that bullish; this creates some selling opportunities in futures deferred

Soybeans

  • The balance sheet does not look too bullish, although a short crop in Argentina may keep the nearby demand for USA soybeans running longer than thought.
  • Funds do have a tight hold on this futures market and is punishing shorts.
  • The market’s bullishness right now is technical and in our view gives growers a good opportunity to hedge deferred production.

Canola

  • Through week 24 usage amounts to 9.04 myn tonnes compared to last year to date of 8.4 myn tonnes. The Canola visible is reported as down to 1.4 myn tonnes.
  • The canola product value relative to soybean products has narrowed in to being about the right discount to soybeans. It could narrow more, however, we think this is a good level to get short some new crop again.

Wheat

  • Wheat fundamentals are still overall bearish to neutral at best. However, the restricted supply of high quality wheat will still represent opportunities for that class of wheat.
    • There is plenty of wheat
    • But US new crop S&D is dented by low winter plantings
    • Less than exceptional demand for now
    • No serious crop concerns
  • At the same time, spring wheat values have gained a lot of ground since mid-November ‘16. Dark Northern Spring wheat values in the Pacific Northwest in the US (PNW) are showing very good values, which eventually should generate decent values at the Canadian farm level as well.

Durum

  • In the USDA grain stocks report, durum stocks at Dec 1 were put 21% higher y/y at 72.9 myn bu. Sept/Nov 2016 indicated disappearance was pegged 40% higher y/y at 19.0 myn bu.
  • The week 24 CGC report shows that Canadian durum exports as of week 24 lag last year’s by 215k mt or 10%.

Feed Grains

  • The fund long and usage estimates for J/F/M puts a heavy demand for corn and requires that the market needs to buy back from the Funds. If soybeans hold, this should provide good support for corn.
  • The USDA gave us a provisional estimate reducing new crop corn acres to the benefit of more soybeans acres. This would be the case if soybeans for new crop continue their strong beneficial returns over corn

Peas

  • Current crop yellow pea values are generally at $9.00/bu FOB farm SK for delivery February through April. There are also enquiries at the same level for April though to June ’17. We expect yellow pea markets to remain firm.
  • New crop bids for yellows are at $8.00/bu.

Lentils

  • Current crop lentil prices remain high, though we note some of the lower grade values slipped bit in spite of the lower Canadian dollar as traded volumes remain relatively small. We therefore still think it is a good idea to get old crop lentils sold.
  • We noted that new crop lentil bids slipped by $1-2/cwt over the past week, due to pretty solid/ high forecasts for next year’s lentil acres in Canada, and the final lentil numbers from the US last week, which state that 2016 US lentil production was 41% higher than the year prior at 575k mt, a record high.
  • In India land in lentils is said to be up by a full 18% to around 4.2 million acres, and pigeon pea acres are up 40% to 13.1 million acres. If this crop comes of well, imports of lentils to India are bound to fall or at least flatten off compared to the increases over the past 2 years, even if pulse demand keeps climbing.

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