MarketInsight, Aug. 22, 2016

Marlene BoerschMarket Insight

Major grains & oilseeds markets

It was a relatively slow week of trading in futures last week, which saw more short covering in wheat. Funds did little in the markets; analysts don’t see them doing much this week either.

Export numbers of cash grains were generally good and we have little doubt the USDA will need to increase the export estimates in the next WASDE report. The markets still have doubters concerning the USDA new crop corn yield estimate, and this coupled with increased export demand and reluctance of producers to sell has firmed the corn markets; cash premiums are particularly firm considering the size of the carryout and the USDA projections for the incoming crop.

Funds: Index funds reportedly did nothing while speculative funds reportedly bought in some of their wheat short.

Soybeans

  • There were more reports of soybean crushers in Brazil needing to shut down plants due a shortage of soybeans – which leads to more purchase of US soybeans by Chinese crushers.
  • Cash premiums in the Gulf and PNW continue to be very firm and should keep soybean futures inverted, volatile, and firm.
  • US producers are quite strong holders and funds reportedly still own over 27 myn tonnes, mainly in nearby months, which should keep the markets strong if shorts are forced to cover futures. For the time being this overrides anything bearish in the WASDE report. The ratio is reflecting the tightness in old crop beans and giving strength to the NOV/Dec position too.

Canola

  • In the first 2 weeks of the new crop, producers delivered 368,000 tonnes, exports were 235,000 tonnes, and domestic usage was 340,000 tonnes. The visible supply shrank to 689,000 tonnes – barely two weeks of usage.
  • We have asked the Canola Council to confirm whether members of their group have made sales and await their comments. In the meantime, canola remains undervalued to soybeans and is competitively priced for additional sales to Europe.

Wheat

  • Cash sales of wheat were brisk and while little North American wheat traded on tenders, prices were better and quality concerns are becoming a bigger issue.
  • Neither the US nor the world is short of low quality wheat, but both cash and futures continue to suggest the lows are in, and the market remains about allocating demand amongst the various origins as a function of price, quality and freight spreads.
  • The speculative short in cash and US futures is arguably perhaps too large, and should aid both KC and Minneapolis futures and cash premiums for quality wheat.

Durum

  • IGC last forecast global 2016 durum production would come in 2% below the previous year due reduced prospects in Morocco, Algeria, Turkey, and Syria. Global carry is currently expected by AAFC at 200k mt above last season at 8.0 myn mt (manageable).
  • Tunisia bought 50kt Dec-Jan durum at $256.

Feed Grains

  • The US corn producer is a tight seller in a context of low flat price, board carries and big premiums – which have little downside given the need to compete with beans for Gulf elevations.

Peas

  • Pea yields in Cda. are positive, and bids for yellow peas are sliding, both on optimistic supply estimates and in spite of shortfalls in Europe (especially France), and market reluctance to speculatively price more product.
  • There are also rumors circulating about buyer defaults, particularly for pending shipments to India.

Lentils

  • The quality questions for the short-term (per samples seen thus far) looks somewhat better than initially feared. Red Lentils are yielding a high percentage of #2 or better. This will reduce the need to short cover non-producing acres for committed shipments.
  • Green Lentils are being viewed as yielding a #2, or X3 quality. The top grade will be hard to find for large green varieties.

Chickpeas:

  • Some of the Kabuli chickpea fields are still holding up! However, we are still 4-5 weeks from harvest.

Canaryseed:

  • Some of the Canaryseed fields are showing a lot of lodging, as do many other crops. Some yields may be affected because the crop cannot be picked up completely.
  • On the other hand there is much speculation (by grain Co’s?) that the C/I may be much larger than estimated so far.

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