Major grains & oilseeds markets
There was not much in the WASDE report for the bulls. The exception could be the lowering of the spring wheat production but in our opinion, this is offset in the world markets from higher Russian/ Canadian/ Australian exports to world buyers. There is also a surplus to USA domestic wheat usage so the current market premium is way too large. There will need to be a major downgrade of USA production in the August WASDE to get us bullish on world wheat. In the July WASDE report the USDA raised the total grains ending stocks by 8 million mt, but at 611 million mt it is well below the 2016/17 estimate of ending stocks of 639 million mt.
Funds were huge buyers in the run-up to the WASDE report; Index Funds bought 5 million mt whilst the Speculative group bought a massive 27 million mt of mainly corn and soybeans.
- The world balance sheet does not suggest a shortage of oilseeds.
- The USDA raised their estimate of Chinese imports for 2017/18 to 94 million mtn tonnes.
- We think the increase is premature, particularly when looking at the current year to date and current very poor crush margins.
- We expect to see Nov soybeans to trade down to the $9.50/$9.75 range.
- In week 49 growers delivered 302,000 tonnes exports were 289,000 tonnes and the domestic usage was 147,000 tonnes. The visible shrank to 743,000 tonnes.
- There is little doubt that we should have a tight carryover so new crop “basis” levels should narrow – growers should not be pricing new crop “basis” levels presently or selling anymore new crop for the time being.
- Buyer’s will come to you – Oct through Dec should be worth $11.50 at the elevator.
- Flaxseed in Canada is currently rated 21% in poor to very poor condition, 37% fair condition, 42% good to excellent. In North Dakota, which has most of US flaxseed acres, flaxseed condition was rated 16% very poor, 21% poor, 33% fair, 29% good, and only 1% excellent. In addition, US flax acres are down 23% from last year and 16% below the 5-year average. This is giving concern about overall yields.
- Flax should be worth min. $12/bu (+), and we do not advocate selling below that level.
- The US spring wheat crop is now rated at 35% in good to excellent condition, which is down by another 2% from last week’s estimate of 37% good/excellent.
- The dryness over US and Canadian spring and durum wheat crop is worsening, there is very little rain in the Australian forecast (the long term is hot and dry), and the market is waiting on quality data from both Russia and the EU. – While the world is not running out of wheat, quality spreads will be the big issue this year, and basis current prices, there still have to be some major realignments between the different origins.
- We are still of the opinion that spring wheat is a good sale but the Canadian ‘basis” is wide we would expect to see prices of $8.50 or better and would hold for that for the present.
- The Saskatchewan durum crop is currently rated 43% good or excellent and 21% poor or very poor.
- 65% of Montana durum and 33% of the North Dakota durum crop are now rated poor or very poor. On average Montana produces 26% of the US durum crop, while North Dakota produces 53% of US durum.
- Cash durum is still in the range of $6.66 per bushel in Western Canada and we expect to see better values going forward.
Barley/ Feed grains
- We see no shortage of feed grains at this time.
- Mercantile is using a 4-4.1 million mt 2017 production number for Canadian peas (all types of peas combined). This is about 16% smaller than last year’s production. We also put the 2017 world pea production (major producers) about 11% smaller than last year’s (9.4 million mt in ’17 vs. 10.5 million mt in ’16).
- The depth of demand depends to a large degree on what happens to production of various pulses on the India Subcontinent. Here, we are more optimistic than others, and are using a 5.4 million mt world trade number. Time (and the quality of the monsoon season) will tell the true story.
- Where we may have some challenges is in the timing of additional sales; the second tranche of pea purchases may be significantly later than last year, meaning that there may be a waiting period into Feb/March ’18 for the follow-up demand.
- We will need to be prepared for that to maximize prices. Hopefully we will have the chance to ship ample wheat instead in the meantime.
- Green Lentils: Given the precarious balance sheet, we expect green lentil prices to have significant upward potential (+$5-7/cwt) ‘if’ dryness and heat persist in southern Saskatchewan and Montana/ North Dakota.
- Red Lentils: While we are more optimistic than others, we still expect the red lentil market to be flat for a while, until pulse stocks in India have diminished over the late summer/ fall.
[If you are interested in more background intelligence and our supply & demand balance sheets, pls contact Mercantile]