Major grains & oilseeds markets – It was a very quiet week in the markets; futures volumes were light, and cash sales also. Egypt was the most significant cash wheat trade following a change in their ergot requirement. Weekly export numbers for corn were very good while soybeans and wheat were in line with trade expectations. The weather was normal with the exception of heavy rains in parts of Argentina. The markets will be watching what the USDA has to say in their Outlook Conference this week and we expect trade to again be quite slow. The markets were slightly higher on the week and we expect the same in the coming week.
Funds did nothing this week to their overall positions. Speculator/speculative funds did buy some soybeans and sell corn, but this did little to support soybeans.
Soybeans – No new US sales were registered to China and low Chinese US imports for January are a little bearish on soybeans.
Prices are more favorable for corn planting than soybeans, but we do not think this can improve prices in soybeans for the next 60 days. The ratio is about right for old crop but too low for new crop soybeans.
New crop soybean prices and the low Canadian dollar should encourage the planting of more soybeans in Western Canada.
Canola – We have increased our export projections based upon year-to-date performance. At current price levels it is likely we will see more go to the EU, Pakistan, Bangladesh, and to the US. We still need China to pick up the pace. Canola continues to be priced competitively-enough to both soybeans and palm oil to encourage demand in both old and new crop. The continuance of very high weekly deliveries leads to further questions regarding the size of this crop; is it a monster, or were deliveries are front-end loaded due to lousy wheat bids? Obviously, it is much above the 13.3-myn tonnes that was the early call.
Flaxseed – We note that AAFC finally lowered their export forecast for 2015/15 from 800k mt (previously 840k mt) to 700k mt. Mercantile had long questioned the validity of that forecast, as we could not confirm such a high export number when assessing the market destination by destination. However, AAFC is lowering ending stocks at the same time by increasing domestic use from 98k mt to 219k mt. It is not clear if this merely a fudging exercise to make their number work; in any case these would be a historically high F/S/W number. – Mercantile thinks that their ending stocks number is too low given the tepid export pace.
Wheat – Old crop cash remains heavy and the trade now awaits the USDA’s Outlook Conference for a first real look at new crop potential. New crop production is expected to be reduced significantly, and with the large short positions in CBOT futures for the time being we feel the downside to the market is limited.
Durum – AAFC’s Feb balance sheet update forecast 16/17 Canadian durum area would grow 2% on the crop year to 2.4 myn ha – due relatively higher 15/16 price versus HRS. Output grows 9% to 5.9 myn mt versus 5.389 myn in 15/16 (due a return to trend yield). Carryout was forecast to increase 18% on the crop year to 1.3 myn mt versus 1.1 myn in 15/16.
Feed Grains – The markets rose a bit this week but cash markets remain well supplied.
In the short term, we cannot see much reason for a rally unless there is bullish news from the USDA Outlook Conference.
Peas – Domestically, there have been good spot bids available for peas as exporters try to finish unit trains, but we think activities will slow down forward when tonnages become too small for bulk shipments. Commercial trading was very quiet this week because China had been off for their New Year’s celebrations, but they should be back in the market in this coming week. India was quiet as well as many traders were attending a pulse conference in Jaipur, India. We expect them back in the market next week, but only for smaller purchases. India, China, and Bangladesh combined represent about 88% of the pea market year-to-date, so when they are absent things quiet down considerably.
Lentils – Green lentil prices remain very strong as availability deteriorates. This also means that very few tonnes of lentils are fetching the top prices. Current crop red lentils still fetch $47-$48/ cwt, especially from those exporters who can also split red lentils. Processors are concerned about having little or no product to process after March/ April, and are trying to secure what’s left. We expect the level of carryout for lentils to be even smaller than that for peas, which is the supporting factor behind the strong old crop prices.
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