MarketInsight Aug. 17, 2015

Marlene BoerschMarket Insight

Major grains & oilseeds markets –

The main talking point last week was the WASDE report. The USDA gave the trade a surprise when in the report they raised the yields for corn and soybeans when most in the trade were expecting the yield to be lowered. The USDA added 2 bushels to the expected corn yield, and put soybean up 0.9 bushels for a record yield of 46.9 bushels per acre. The USDA estimates were totally unexpected and the futures collapsed to their recent lows. The only supportive number was the reduction the USDA saw in the world soybean carryover in 2016. There was a brisk cash trade in wheat during the week while speculative funds were quite active selling futures.

 

Soybeans – The WASDE numbers were unexpected and soybean prices took it on the chin. Last week we thought new crop soybean futures were overpriced, this week we think they are underpriced; November should be at least 25 cents higher assuming Dec corn holds $3.75.

Canola – Domestic crush margins are poor and are below costs for a new plant. Overseas margins are better and importers will continue to crush – even though their margins are poor compared to previous years.

Flaxseed – At 680k mt, Canadian 2014/’15 flaxseed exports are a full 26% ahead of last year’s exports. May was an especially big shipment month due to 62k mt shipments into the EU. 93% of all flax this crop year was shipped to the top three destinations of China, Belgium and the U.S. China and the EU are the main drivers of the.

The average trade estimate for new crop flaxseed production this week (prior to the StatsCan report next Friday) came in at 910,000 mt, which would be 7.4% higher than last years’ 874,100 mt production. The range for the estimate was high: 750k – 1.1 million mt. A 910k mt production number combined with the roughly 100k mt carry-in stocks this year will be sufficient to cover the expected roughly 750k mt export program.

Wheat – The WASDE report signalled sufficient global corn and soybean supplies and record wheat supplies. The bottom-line remains that US cash prices are too high to garner demand. There exist sufficient global carryover stocks. The large available global supply of feed grains provides overhead price resistance.

Durum – We expect 15/16 global output will come in modestly above 14/15 as the EU crop escaped harvest intact. Global 15/16 carry-in is modest and stocks should remain fairly tight when viewed historically; Canadian carry is on pace to decline as well.

Barley – Persistent dryness in Ab and in parts of Sk. has impacted quality in Canada, though the final results are not yet in. Malt imports are a risk in Canada this season. Though area was higher this season in Canada, and despite that the crop is not yet made, we expect the 15/16 malt situation will be tight and that carry can decline.

Oats – Oat prices held fairly tight during the grains selloff of the past week, and we now view them as a cheap feed input; however, the market still finished lower on the week, the charts for new crop positions continue to suggest a bearish outlook, though while price remains under pressure – the weak Canadian currency acts as an offset in theory.

 

Peas At 2.94 million mt, year to date (June 30/’15) Canadian pea exports are still 15% ahead of last years’ pace. 67% of all peas disappear to the top two destinations India and China. 88% of all peas end up in the top four destinations, India, China, Bangladesh and the United States.

We project total 2014/’15 pea exports at 3.05-3.1 million mt; a new record. Next years’ exports volume will be smaller due to a smaller total supply [if you a subscriber, see our current balance sheet for detail & reference].

Lentils – At 2.1 million mt, Canadian 2014/’15 lentil exports are a full 30% ahead of last years exports and are the biggest ever. Shipments during June ’15 fell from previous months not because of lack of demand but due to lack of supply in Canada. 58% of all lentils were shipped to the top three destinations of India, Turkey and the UAE. India and the UAE were the main drivers of the market in both May and in June ’15.

Exports in the new crop year will have to fall to around 1.8 million mt due to lower supply. [If you are interested in our new crop lentil supply & demand numbers, pls contact Mercantile]

Canaryseed – YTD exports of Canadian canaryseed at 156k mt are only 3% higher than last year’s. Growers stopped selling the crop in late June as crop problems became apparent. Mexico remains the single largest destination with 37k mt YTD, followed by Belgium with 17k mt. Next year’s exports will be determined by the size of this year’s crop.