MERCANTILE Blog: MarketInsight Nov. 28, 2016

Marlene BoerschMarket Insight

Cntr. vssl

Major grains & oilseeds markets

It was a short week in the markets, which left most futures, and cash prices ill-defined – with the exception of soybeans, which put in a very strong performance. The markets should be back to normal by the end of this week (when we should have more news to report).

Funds: The positions report was delayed due to the Holiday; however, it is thought that speculative funds bought about 8 myn mt of mainly soybeans and corn in the early part of the week.

Financial markets continued volatile following the US election. The dollar index was marginally higher, crude oil was lower, while copper was very strong. The financial markets continue to appear very confused; the strength in copper was said to be as a consequence of fear of Yuan devaluation.

Soybeans

  • Soybeans were strong due continued buying from China and on the Environmental Protection Agency (EPA) decision to raise the biofuel quota to 19.3 billion gallons – which was unexpected.
  • The EPA announcement to increase bio fuels was seen as quite bullish and pushed palm oil limit up.
  • We expect more Chinese purchases will be registered with USDA in the coming week.

Canola

  • The reason for the rally was the EPA’s increase the bio-fuel quota, which will make canola a very good product to crush in the US because of its high oil content.
  • We can see from the product value for canola crush compared to soybeans in China how attractive canola is.

Wheat

  • The Australian harvest has started, so for the short term the world has no shortage of wheat.
  • However, the spread between high quality and low quality wheat is widening, and it is still unclear if Australian and Argentine wheat can improve the supply balance between high and low quality wheat.
  • Still, the price downside for wheat looks limited, despite higher world, US and major exporter’s stocks.

Durum

  • The weekly USDA/WAOB Weather and Crop bulletin reported the drought in Turkey is intensifying in strength and has “depleted soil moisture for proper winter wheat establishment”, and the size of the drought-afflicted area is growing in both the south and east.
  • In northwestern Africa, rains continue to alleviate the drought in Algeria, though dry conditions lingered in northern Morocco.

Feed Grains

  • South American weather remains favourable for corn, the world has no shortage of corn,
  • There appear to be few reasons for any imminent or sustained rally.

Peas

  • The pace of pea shipments has been excellent; YTD bulk exports have reached 1.6 million mt, and are 33% (398k mt) ahead of last year’s good pace.
  • Pea usage in India has been helped by the big premiums of chickpeas over yellow peas, increasing usage substantially and driving forward prices.

Lentils

  • Especially the domestic red lentil market this fall had been driven by the need to feed the bulk vessel tonnages. Once these shipments are caught up, we expect bulk shipments to slow.
  • New sales will have to be made and may reflect a lower red lentil market. Right now, Australian product is starting to reach the markets in the Indian Subcontinent, and we note that Australian grower prices have started to slip below those for Canadian producers.
  • Longer term, the forward price level will be determined by the rabi crop harvest in India. Given a strong pulse crop, red lentil prices will weaken.

Chickpeas

  • Most of the chickpea quality is more than questionable, but the saving grace has been interest by the U.S. pet food industry in off grade chickpeas at $30/cwt. This is where much of the mall Canadian crop will be moving.

Canaryseed

  • According to SAF’s final report, 82% of SK canaryseed has been harvested and the SAF yield estimate was 1,097 lbs/ acre which would produce 137k mt (150k mt last crop year) over the whole acreage. If 18% stayed unharvested, this would reduce production by another 25k mt, which would be significant.
  • The markets seem to assume that the reminder will still be harvested now or in the spring, as prices moved to $23/cwt.

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