MERCANTILE Blog: MarketInsight May 29, 2017

Marlene BoerschMarket Insight

seeding02

Major grains & oilseeds markets

Grain markets finished the week last Friday with a bearish tone, as weather was benign in most of North America. Planting has moved up to about normal progress and crop development is improving as well. In Europe, yields were cut somewhat due to lower expected grain yields especially Spain (barley & wheat) and to some degree France (soft wheat), but UK yields were upgraded. Moderately helpful to canola (rapeseed) for next crop year may be some cuts to expected French and German rapeseed yields.  These developments could limit the downward potential a little, but in reality, there is no shortage of grains and oilseeds expected for the 2017/18 crop year. It would take some major new event to create a real shortage in any crop.

The IGC last week increased their 2016/17 forecast for total world grains again by another 8 million mt from last month (thus increasing ending stocks), but decreased ‘17/18 production by only 1 million mt. On the oilseed side, IGC also increased the ‘16/17 production (due South America), with the same effect on ‘17/18 soybean supplies, though ‘17/18 production was left unchanged for now.  Fundamentals are creating a bearish backdrop, so we need to continue looking for bullish blips to keep chipping away at sales.

Spec Funds Speculative hedge funds sold oilseeds (-6 mln mt) and are buying in their grain short (+~4 mln mt).  Their total short is now -62 million mt; the second largest short!

 

Soybeans

  • Oilseeds were struggling last week and were worse this week. There seems nothing to hold the slide for now.
  • Ideas of possibly higher soybean acreage in the US and more Argentine and Brazilian selling weighed on prices. The Argentine peso weakened.
  • importantly, PRC crush margin reportedly slid to 9 month lows. China bought only one cargo of US soybeans last week, begging the question if meal demand is slowing.

Canola

  • In week 42 farmers delivered 242k mt of canola. Domestic disappearance was at 149k mt, and exports at 94k mt were relatively small after last week’s big liftings; total usage for the week was 241.5k mt. The visible was shown at a fairly tight 830k mt.
  • Alberta crop progress as of May 23rd was at only 49.1%. especially the northeast, northwest and Peace regions are only 34.5%, 32.9%, and 36.5% seeded, respectively.
  • There has been no commercial trading of canola. Neither old crop nor new crop canola are currently competitive with soybeans in the export markets.  Canola is basically over-priced to beans, especially on old-crop.

Wheat

  • In the futures markets wheat was relatively unchanged throughout much of the week in mixed trading, but closed the week at 4.38 per bushel, up sharply 7 cents with a small price rally ahead of the US Memorial Day weekend.
  • Looking forward, wheat ending stocks for the 2017/2018 crop year still look reasonably high, but it’s possible that a weather or crop crisis could bring a short-term price rally to the futures market in the coming weeks.
  • The USDA will also be publishing an international trade report on Friday, which will be watched by the market.

Durum

  • Per SAF, seeding of durum is behind normal right now (75% seeded vs. 88% last year and an 82% 5-year average), and a lot less durum is intended to be seeded this year on top of it.
  • In Canada, acreage is forecast to fall 17% from last year to 5.15 million acres, although this is only 2.6% below the 5-year average of 5.28 million acres.
  • In the U.S., durum acres are expected to drop 20% to 2.4 million acres.

Barley

  • Looking forward to the coming week, we don’t expect barley values to depreciate due to the projected low ending stocks and the possibly that some US corn acres will switch to soybeans which could support higher feed grain pricing.

Peas

  • The Saskatchewan seeding update as of May 22nd showed 73% of SK peas seeded. This is 15% behind last year’s progress at 88% and 10% behind the 5-year average for peas of 83%. SK provincial crop development is about 32% behind on average, with the biggest lags in the Northeast and Northwest. In Alberta, 77% of peas had been seeded as of May 23rd. That is, south and central Alberta are essentially done, but Northwest AB and the Peace region were only 57 and 22% seeded, respectively.
  • There is some concern that pea acres in Northern Alberta and some pockets in Northeast and Northwest SK may not get seeded due excess moisture.
  • We still anticipate that most acres will get seeded, but our calculations shows that acreage losses could be important to the mkt.

Lentils

  • (Not surprisingly) AAFC is using the StatsCan 25.2% acreage reduction for lentils. Mercantile still thinks the acreage reduction for lentil may be a bit more moderate. But in either scenario, given the quality of the ending stocks, additional acreage losses due wet conditions or slow seeding progress would potentially tighten the balance sheet significantly. – We need to wait and see what the final seeding numbers and crop condition will be.

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