MarketInsight Feb. 8, 2016

Marlene BoerschMarket Insight

Major grains & oilseeds markets – There were no significant features to the markets, as a sense of market apathy, lower prices, and the availability of money becomes a factor. There were more negative supply comments regarding drought in Africa (effects of El Nino), but it will take international intervention before there is a solution to these famines.

Funds did some more buying during the week but the volume was light. The glamour of hedge funds for investors has diminished as most showed negative results for January.

Cash trade in wheat was at lower prices while the premium for better quality milling wheat remains. Feed wheat now competes on price with corn.

Soybeans – There has been no trade reported to the USDA for China in the last three weeks, which is considered bearish. The price ratio is about right on old crop, but is undervalued on new crop.

We can’t see anything special in soybeans for the present and we expect they will be followers of the market until we see either some fresh consumptive buying or some weather issues in South America. The current forecast for South America looks quite good.

Canola – For the most part canola has been a market follower with prices moving more on the Canadian dollar exchange rate than anything else. Canola remains very competitively priced and demand should remain good throughout the year with the strength in the oil market. Canada will carry out the minimum required.

Flaxseed – Canadian exports are lagging last year’s exports by 22% (or 67k mt) by the end of 2015. Notably, exports to the U.S. are down by 41% (24k mt), to China they are down by 13% (17k mt), and to Europe they are down by 14% (22k mt). In other words so far this crop year, every major destination is down from last year’s export levels.

Wheat – There is little that is going to change the oversupply excess on old crop in the short term. The weather across the Northern hemisphere is favourable, the futures are a money game, and the cash market has no reason to rally.

Durum – Current accounting of Canadian exports (by-week) shows our exports continue to lag; as of week 26 in the current 15/16 crop year, per CGC, Canadian durum exports are 2.334 myn mt versus 2.723 myn mt last year on this date. The slow exports thus far are concerning. We see the risk of expansion to area in both Canada and US in 16/17.

Feed Grains – Cheaper prices on sorghum and feed wheat are pressuring corn prices, and despite excellent weekly exports corn prices are weaker. We cannot see prices recovering at all as buyers have a myriad of options. Buyers will not take extended coverage, which will keep prices around current levels for the immediate future.

Peas The StatsCan’s stock numbers as of Dec. 31/’15 came out on Thursday and stated that pea stocks were still at 2.2 million mt at the end of last calendar year. This number looks too high to us and does not make sense. It would imply a calculated inferred use of 1.4 million mt, when the StatsCan Dec. ’15 export number (published Friday) states that exports alone reached 1.5 million mt by the end of December. So unless the 2015 harvest was bigger or carry-in was bigger than assumed, the StatsCan stocks number looks overstated. – We don’t think that actual stocks would be as tight as described above if the StatsCan number were correct.

Lentils – The current crop lentil market in Canada remains very dynamic, with up to $77/cwt having been paid for large green lentils. Small greens have also become scarce and fetch $60/cwt for decent quality. Reds have eased a bit as importers in India wrestle with distributing bulk arrivals of chickpeas (Australia has shipped ~850k mt of desis to India since their harvest this winter), peas and lentils.

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