MarketInsight December 8, 2014

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Major grains & oilseeds markets

Statistics Canada published their crop estimates, which showed increased canola and wheat production. However, few have any confidence in the accuracy of this report as the canola futures market reaction testified Thursday and Friday. It should be noted that while StatsCan (a Government Department) increased the supplies of Canadian grain by nearly 3 mln tonnes, the Canadian government reduced the railroad’s mandate to provide railcars to move grain. Not well coordinated to say the least

Soybeans – Large specs were big sellers of soybeans, influenced by weak fossil oil prices and the soy/corn ratio that was around the 2.80 level. We do not expect to see any significant changes in Wednesdays WASDE report`; they may increase US soybean exports and reduce the US carryover a smidgen.

Canola – Producers slowed deliveries in week 17 to 220,000 tonnes; that was in line with the week’s usage. Visible stocks slipped a little to 1.26 myn tonnes. There is a wide range of “basis” bids the best are at 100 car loaders who need canola to complete a train. It pays to look around. We think the StatsCan estimate of the crop is overstated and the market’s reaction to their estimate showed few were believers. Any professional statistician would be embarrassed by the way StatsCan change their numbers from one publication to the next.

Flaxseed – The StatsCan flax production estimate last week came in at 847k mt, 75k mt below their October estimate of 922k mt. At least the number is getting closer to the Mercantile number.

Wheat – The wheat market closed moderately higher on the week. The cold Black Sea weather conditions into winter wheat dormancy there were supportive, as was the 4% cut to the Aussie wheat output estimate by ABARES. Tepid US weekly export sales, the strong US dollar, and the large output guess from StatsCan provided resistance during the week. In reality, global production is little changed as the Aussie loss and the Canadian gain are of a similar size and cancel each other out as such.

Durum – StatsCan put total durum production at 5.193 myn mt, 20.2% below 2013’s output of 6.505 myn mt; this was well-above the average pre-report analyst estimate of 4.8 myn mt (estimate range: 4.5/5.2), and also well-above StatsCan’s previous estimate of 4.756 myn mt in Oct. 2014

Barley – StatsCan put total Canadian barley production at 7.119 myn mt, 30.5% below the 2013 production of 10.237 myn mt; this estimate was fractionally below the average pre-report analyst estimate of 7.2 myn mt (estimate range: 7.0/7.4), and was in line with StatsCan’s previous estimate of 7.119 myn mt in Oct. 2014. Harvested area was 19.5% lower on the year, and average yield fell by 13.7%.
Our domestic Canadian cash price increased a marginal $1.00 per mt on the week basis Lethbridge. Our view remains that Canadian-origin barley offers value to consumers at present.

Peas – The pea market continued firm, though trading is indeed slowing down towards Christmas as has been anticipated by us. Bulk exports for the week were modest at 12,900 mt. Terminal stocks climbed to 58,500 mt, and we expect most of this to move out still before Christmas. Export performance YTD remains ahead relative to last years’ with a 415k mt advantage. It is remarkable how much the rail movement mandate helped exports.
The StatsCan pea production number came in at 3.445 million mt, down 4% from their September estimate and a full 13% smaller than last years’ pea crop. If anything, this new, lower StatsCan pea production number is bullish in a market where exports have surged way ahead of last years’.

Lentils – Overall lentil production was pegged at 1.837 million mt, down 5% (or 93,000 mt) from the October estimate and down 13% from last year’s record 2.173 million mt production. At the same time, Canada is ahead of last years’ lentil handling pace by virtually every measure and the November StatsCan production numbers have not done anything to reassure buyers.

Transportation – Canada started off quite well compared to last year, but railcars provided still only lifted on average 45 percent of what was available to load in primary elevators. With the reduction in mandate, we are now down to loading 35 percent of what’s available in week 17 and going lower, and we are only utilizing about 55 percent of elevator space. We also now have a weak Canadian dollar and railways will now make more money carrying US grain.

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