MarketInsight July 13, 2015

Marlene BoerschMarket Insight

Major grains & oilseeds markets –

The corn and soybean estimates contained within the WASDE report were essentially in line with market expectations and were supportive to the market – especially as most believe the USDA needs to adjust their yield expectations lower. The WASDE wheat estimates were a surprise to both the market and to us; they increased the Chinese carry-in numbers by 11 myn tonnes, left unchanged a number of countries where El Nino conditions are active, and increased production in Eastern Europe where many believe production to be lower. The USDA wheat numbers are bearish, but we like many others have difficulty accepting these estimates, particularly given that China has such an influence on their forecasts and that Chinese numbers are the most unreliable. The increased wheat carry in for China that the USDA uses is effectively the reason for the world grains stocks increase.

Funds were huge buyers again this past week; they have in effect moved to long all grains and oilseeds except for a small short in wheat. Their short-covering was the reason for the strong markets recently and it is tough to see where we go from here. Where the markets go is dependent on weather during the next 60 days and whether consumers come in to buy.

Soybeans – The WASDE report reduced the old and new crop US soybean estimates. They did not reduce the yield and we still have some acres to be planted, so the market was relatively friendly to the report.  The corn-bean ratio is on the low side basis both the report numbers and how far we still have to go before the North American new crop is in the bin.

Canola – Producers delivered 307,000 tonnes in week 48; we crushed 139,000 tonnes, and exported 181,000 tonnes on the week. The visible supply was 1.256 myn tonnes. The strong deliveries in week 48 continue to make us think that the crop was larger than originally thought, and that the March 30 stocks were underreported. The 2014/15 balance sheet remains tight – but not as tight as the stocks suggested by the March 30 StatsCan report. Producers clearly kept a few bushels in their back pockets; that was the right thing to do. Canola demand for 2015/16 will need to be lower as we do not have the supplies.

Flaxseed – We saw a fair number of flax acres in southwestern Saskatchewan this past week, and many fields looked quite good. SK agriculture reports 45% of flax in the flower to boll stage. We expect a close to average yield for flax at this stage.

Wheat – There was nothing bullish about this week’s US or world wheat balance sheets in the WASDE report. North American wheat for now remains at a premium to wheat from Eastern Europe. Based on USDA numbers the futures appear bearish, yet the funds have been huge buyers in recent weeks!

Durum – Tunisia’s state grains agency tendered this past week for 50k mt optional-origin durum for Nov, and passed; the lowest offer on the sheet reportedly was $442.29 per mt C&F. Global 15/16 carry-in is modest and stocks should remain fairly tight when viewed historically.

Barley – Given the weather in Europe and on the Prairies we expect malt barley to proof interesting this year, amd we expect to see prices aroud $6/bu later this year.

Oats – Forward global grain prospects are reduced, but sufficient global feed stocks exist.

Peas Peas are going to be tight next crop year and we would not sell more at current prices.

Lentils – Lentils are caught between the relatively bullish StatsCan acreage report and problems with current crop conditions. The first says that there are more lentil acres than ever before, while the latter emphasizes weather stress that could affect yields in SW Saskatchewan and in Alberta well below their 5-year average. Matters are complicated a bit by the fact that the later varieties have not yet been severely tested in drought conditions, so historic numbers may not give a good comparison.   We also need to keep in mind that lentil prices are relatively much higher than those for peas, so price increases will be harder to obtain in the market place than for peas.