MarketInsight February 2, 2015

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Major grains & oilseeds markets –
The markets continued to move lower this past week. The biggest feature was the commodity fund trade, sellers of over 10 myn tonnes of futures on the week. Fortunately, index funds sold very little; if they were to follow the large specs and sell the market could easily lose another 50 cents, particularly in corn and soybeans. The only positive thing technically is that the RSI is indicating toward oversold levels.
Cash business was quite good in wheat, though it was done at lower price levels and North American origins remain uncompetitive to most areas of trade. The financial markets remain in disarray; 2015 in general has begun with negatives outweighing any positives. Oil markets were a little more stable on Friday.

Soybeans – There were some additional soybean cancellations from China and we expect more in the coming week. Drought conditions in Brazil need to be monitored, but the immediate problem is an early harvest, which will pressure the market.
While the market is bearish, there is not much talk about the drought; however, it is very serious as Sao Paulo will need to go on water rationing because the reservoirs are drying out. Soybean prices have again ground lost to corn, primarily pressured by spec fund selling of futures. First support is $9.00, second is $8.00.
Canola – Canola is down following soybeans but is supported by the weak Canadian dollar. April/May shipment is competitive, as is new crop as well, and we understand we did have buyers interested last week from Pakistan and China. We do not hear of any business concluded yet. We can see that the market has rolled quite a lot March futures forward.
Flaxseed – Next years’ flax acres in Saskatchewan are again expected to be up by as much as 30% by some this summer. AAFC anticipates a more moderate 11.2% acreage to 1.73 mln acres.

Wheat – Cash business was quite good in wheat, though it was done at lower price levels and North American origins remain uncompetitive to most areas of trade.
The futures look cheap and may indeed be oversold, but the cash market is slow and China will likely eventually soon increase their purchases of South American new crop. The EU is building stocks at present, and Russia is doing so at home as well. Nothing in the cash market is suggesting to consumers that they should switch from the current hand-to-mouth purchasing strategy, and in our view a key risk now is that Russia will eventually soon return to the export market in a few months. There are no serious crop production issues facing current global crops. The EU is facing increased carryover stocks. With German wheat priced the cheapest in the hard wheat markets (and French in the soft), it doesn’t look as if the global trade is missing Russia at present. The large supply of global feed grains this season provides overhead price resistance.
Durum – Not much to report here this week. The only trade item of note for durum was a release from Iran that stated they were exporting a 24.8k mt tranche of durum to Turkey. In the IGC report last week they mentioned spring EU durum seeded area was expected to increase versus the previous season; this is in line with our long stated view. The saying goes; the best cure for high prices is high prices. The current high FOB price at port in Canada represents the market attempting to draw in what remains of available old crop durum. The high global price of durum at present will also draw increased EU and North American area. The trade will see the increased area and implied resultant output gain as price negative.
Barley – The Canadian domestic price basis Lethbridge declined $6.00 on the week. We suspect we are now at a point where what remains of available feed supply is spread so far out that it is now easier for large Canadian consumers to source/replace/blend their spring needs with imported corn.
Oats – Oat prices have long been viewed by some in the trade as the proverbial canary in the coalmine indicator as to overall to grain price direction; if this axiom applies, then it is difficult to hold out much hope for grain prices going forward over the coming intermediate period.

Peas – The CAD is currently trading at 0.7870, which represents a six-year low. In fact during the month of January 2015, the Canadian dollar has dropped by seven cents, which is unprecedented for a one-month period. Changes of this magnitude must have an effect on market prices and they have resulted in improved producer bids this week again for both old crop and new crop product. Old crop peas are also firm because of tightening supplies as we have rationalized in previous reports.
Lentils – Good demand from the Middle East due to crop shortfalls in Australia and upcoming requirements in Muslim countries ahead of Ramadan (June 29-July 27) are rounding out the bullish environment for current crop lentils. With few stocks for the remainder of the year, the current crop market will stay firm until the first new crop lentils arrive. Turkey will harvest the first sizeable new crop lentil crop starting in June. If they have a good crop, this could provide the first relief to the market.

Railway Performance – While both railroads report record earnings to their shareholders, their performance in lifting grain in Canada is abysmal. The railroads in week 25 only allocated enough cars to lift 20 percent of what was “on call’ to be shipped at primary elevators. The railroads only allocated 6,000 cars – no doubt their railcars were in the US and busily earning US dollars. It is clear Canada does not own a national rail line. All of the grain companies are making all time record profits, so they are not complaining too much.

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About the Authors
Marlene Boersch & Anthony P. Temple
Marlene Boersch (MSc Ag.Econ.) & Anthony Paul Temple bring 70 years of experience and insight into the global world of agriculture to Mercantile. The strength of their company is derived from their practical expertise at senior levels in the grain industry within Canada and abroad. Their combined background provides the partners at Mercantile with a unique knowledge base, distinctively applicable expertise, and with exceptional connections to Canadian, U.S. and overseas customers.