MarketInsight Jan. 4, 2016

Marlene BoerschMarket Insight

Major grains & oilseeds markets – Markets are little-changed versus before the holidays, with some weakness in corn which has been pressured by lower feed wheat prices. There seem to be more effects of El Nino showing up as it strengthens, and this might prove more of a market factor going forward. We expect it will be a slow week as traders settle into the New Year.

The Chinese bought some soybeans and a cargo of canola as crush margins continue to be quite good. Weekly US export figures were low which in our view is to be expected this time of year.

There was some wheat trade into Middle East destinations at slightly lower prices and the arrival wheat of offers out of Argentina. A red flag to watch is the $95 byn Saudi economic deficit.

Soybeans – Weather conditions have improved in Brazil and soybean exports for the week were a low 580k mt (about 200k mt below trade expectations) – which pressured soybean futures.

Canola – Producers delivered 398,000 tonnes in week 20, domestically usage was 165,000 tonnes, and exports were 230,000 tonnes, leaving the visible stocks at a comfortable 1.52 myn tonnes.

There was not any significant volume traded in futures during the holiday period so canola futures followed soybean prices. Usage to-date is close to 900,000 tonnes above last year and we see no reason for lower usage. If as we suspect the StatsCan crop estimate is overstated, then we will have a very tight supply situation developing. A number of crushers and 110 car terminal shippers have paid $11.00 per bushel for March delivery canola, and this should remain the minimum target price to sell additional.

Flaxseed – 65,300 mt of bulk flaxseed loaded during weeks 19 & 20 allowing exports to catch up to 78% of last years’ pace. But we are still 39k mt behind last year with a bigger crop than the previous year.

Wheat – For the start of the New Year, we still have cheap offers and it’s going to take some time if we are going to turn the markets higher. We did have some decent premiums paid for better quality wheat and we are yet to see what affect the US floods have upon winter wheat production.

The surprise was Egypt’s (GASC’s) purchase of 120,000 tonnes of Argentine wheat at $191 C&F, which was $2 below the cheapest Russian FOB price. The key is going to be the quality of the Argentine wheat. It will be interesting to see what the Egyptians do when they receive the wheat.

Durum – With EU and North African crops seeded, durum is headed into an annual quiet period, with export demand fairly light (aside from the coming Moroccan tender results), and speculation about spring North American area still a few months away. The US market has at least featured steady demand from the milling sector. In trade, Morocco is working a sizable tender for 315.0k mt of optional-origin durum for Mch/May; offers are due Jan 5.

Feed Grains – Grains were lower priced based upon more feed wheat offers. The market view is bearish; however, we think markets are ignoring the potential effects of a strengthening El Nino.

Peas Grower bids continue to benefit from the weak Canadian dollar and are actually keeping pace with FOB values at $12-12.50/bu delivered elevator SK for current crop peas and at $10-10.50/bu delivered elevator SK for 2016 crop peas. –Just as a reminder, last year at this time bids for current crop yellow peas were $6.35/bu for J/F’15, bids for greens were at $11.50/bu, and new crop prices were not out yet. This means that yellow pea prices virtually doubled since then, while greens dropped by 30%.

Lentils – Regarding new crop (2016) lentils in Canada, analysts are now discussing Canadian lentil acres around 4.5 – 5 million acres (+), which would be up by another 14 – 27% (+) over last years’ acreage (which also was ~25% higher than the previous year).

There is no doubt that the acreage seeded to lentils in other lentil origins will increase due to high prices.

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