MarketInsight Jan. 12, 2016

Marlene BoerschMarket Insight

Major grains & oilseeds markets – Concerns continue over the state of the Chinese economy, as their stock markets intermittently closed last week. The US markets continue in good shape as reports of the creation of an extra 239,000 new jobs last month keeps the dollar firm, but the stock markets weakened following events in China. Grain markets started the year weak, but they did show some strength in futures by the end of the week.

Fund trading- Speculative elements were once again large sellers. Spec funds positions are close to the largest overall short in many months. Spec funds now offset the index funds long position; it will be interesting to see who blinks first.

Soybeans – There was nothing new in the market this past week. Export sales of soybeans were listed at 23.5 myn bushels (579,400 tonnes) for the 2015-2016 marketing year. The corn/soybean ratio is right for old crop; new crop is too low in our view.

Canola – Canola continues to be fully competitive to soybeans for crushing in China and elsewhere; we understand canola to Portugal for bio-fuel was being negotiated last week. Free canola stocks on farm appear to be getting tight, so we expect to see “basis” levels to begin to strengthen, and that will particularly be the case at the 100 car loading locations.

Flaxseed – StatsCan exports to the end of November ’15 also were disappointing, showing a 55k mt or 34% drop from last year’s pace into the end of November. By destination, to the U.S. flax is at 58% of last years’ exports (-18k mt); to China flax exports are at 69% of last years’ pace (-24k mt); and to Belgium (EU) they are at 68% of last years’ pace (-9k mt).

Wheat – The big picture for cash wheat of “too much wheat chasing too little demand at present” if this continues with the US, EU, Black Sea and Argentina having much more wheat to sell (recall the latter two were essentially absent during the second half of last season), the outlook continues bearish. However the size of the fund short and speculative position in US futures markets is huge and a red flag for “bears”.

Durum – In trade, Morocco is working a sizable tender for 315.0k mt of optional-origin durum for Mch/May, and offers were due Jan 5; results pending. Current accounting of Canadian exports (by-week) shows our exports continue to lag; as of week 22 in the current 15/16 crop year, per CGC, Canadian durum exports are 1.828 myn mt versus 2.399 myn mt last year on this date.

Barley – Canadian feed barley looks fairly valued to producers in our view. The temperate weather has left the domestic market with just light demand from feeders as such. Global barley markets still face stiff competition from other grains.

Peas CIF prices in the Indian market have firmed as well as importers recognize the need for more imports, but Canadian domestic prices would be more difficult to sustain without help from the weak dollar. Most commercial sales for the New Year are for Feb/ March shipment, so the pace of pea vessel loadings is going to pick up again. Demand from India will continue to be a key factor for the pea market during the last half of the crop year. Markets are also hoping that China will pick up their import pace, which has been more relaxed than last crop year. In any case, with India struggling to supply enough pulses at least through the first half of 2016, current crop demand is all but assured.

Lentils – Current crop lentil prices continue to hit new highs in Saskatchewan: $71/cwt have been paid for #1 and #2 large greens (good quality and sized). Small greens fetch up to $55 for #1’s and good #2’s. Reds fetch up to $58 for delivery Feb/ March ’16. – These are extraordinary, historically high prices.

Even more so than for peas, current prices surpass last year’s by a big margin. Prices for current crop lentils are roughly double those last year, and new crop prices are at 150 – 200% of last years’.

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