MarketInsight Dec.7, 2015

Marlene BoerschMarket Insight

Major grains & oilseeds markets – The past week was quite interesting. Futures markets were quite strong as index funds were buyers and spec funds were forced into some short-covering. Cash trade was generally light, which is to be expected at this time of the year. China was a good buyer of soybeans; the EPA’s expected announcements next week regarding a $1.00 production subsidy for bio-diesel, and the El Nino effect on Palm oil, could add up to make the oilseed markets more bullish. Soy oil futures have already sharply strengthened.

We have a new WASDE report due next week. However, we do not think there will be any significant changes to the numbers against the November report. The cash markets in general have fallen into the doldrums, which is normally the feature as we run up to the New Year Holidays. Markets will be light and erratic until the first/second week in January

Soybeans –Chinese were good buyers as crush margins in that country improved. Speculative funds hold a large short in soybeans, so how they react to current concerns will guide futures over the coming weeks. The corn soybean ratio is about right in our opinion considering current conditions.

Canola – StatsCan came out with their new canola crop estimate.  This time they called it 17.2 myn tonnes, following their two previous estimates that were 13.3 myn and 14.3 myn tonnes, respectively. Few in the industry attach much credibility to the StatsCan numbers, and while it is a bearish estimate, few will use it for supply/demand purposes, and it won’t have much effect on prices.

Flaxseed – StatsCan raised their previous flaxseed yield estimate by 2.3 bu/acre and thus Canadian production for 2015 increased to 942k mt, an increase of 11% over last year or + 95k mt. Given we can only see exports of at best 697k mt for this crop year, ending stocks will increase again to around 260k mt, and the stock-use ratio will increase to 33.2%. This is too high.

Wheat – StatsCan put Canadian all-wheat output at 27.594 myn mt, nearly 6% above Oct but conversely 6.2% below 14/15; this estimate came in well-above the average trade analyst estimate (per Reuters survey) of 26.7 myn mt (the range of guesses was 26.0/27.05 myn mt) and above the highest guess, and it was also sizably above the StatsCan estimate of 26.06 myn mt in Oct. Production in 2014 was 29.42 myn mt. Average yield fell 3.3 bu/ac on the year to 42.8 bu/a, as both Sk. and Ab. saw declines.

Durum – The EU issued 15/16 durum export licenses during the week totalling 56k mt; sales since July 1 are 605k mt versus year-ago sales of 385k mt, and versus 1.01 myn mt for the entire 14/15 season. In the final StatsCan report for 2015, they put 15/16 durum output as increasing 3.8% above 14/15 at 5.389 myn mt; this was above the average trade estimate (per Reuters survey) of 5.1 myn mt (range of estimates was 4.7/5.7 myn mt). StatsCan put production at 4.743 myn mt in Oct.

Feed Grains – There was nothing of note reported in feed grains. Exports were quite good and futures were stronger at weeks end as Funds were buyers. Short-term, the markets will get firmer through the New Year.

Peas StatsCan last Friday increased their August estimate by 280k mt to 2.921 million mt, ending up within 7k mt of the Mercantile pea production estimate of 3.194 million mt. There is no change in our opinion that this years’ pea exports will be constrained by available supply because there is unusually deep demand for peas and pulses by buyers on the Indian Subcontinent. Overseas, the record hot weather in India during October and the fact that rabi seeding in India is still lagging 12% behind normal progress due to heat and low water reserves is alerting Indian Gvmt. officials and traders that import requirements are clearly on the rise unless something very unusual happens to nearby weather.

Lentils – The shortfalls in domestic Indian pulse production, especially for pigeon peas and lentils, have spiked ‘additional’ export demand for both red and green lentils. It seems that lentils will again be tight in spite of a roughly 10% increase in world lentil production, including an increase in Canadian production. – All this is resulting in an incredible windfall for Canadian lentil producers for both current and new crop lentils that simply should not be missed.

Canaryseed – Assuming we will export a similar volume to last year, StatsCan’s number implies relatively small ending stocks of 26k mt, and a stock-use ratio of 16%. These are comfortable, but not burdensome stocks.

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