MarketInsight June 15, 2015

Marlene BoerschMarket Insight

Major grains & oilseeds markets –

Weather appears somewhat better, but we are hearing more concerns about adverse conditions that are expected to lower yield estimates. In Eastern Australia, we had some rain that took people’s minds off El Nino, but conditions in the west remain very dry.

We do not have any reports now for a month, so we expect markets to remain in a trading range with volatility based on weather conditions. We do not see markets going much lower as the trade appears more inclined to take in their short at current values.

Soybeans – There was nothing in the WASDE report that was surprising. The outlook remains a little negative provided we don’t have any weather surprises in the USA.

In or view old crop beans are overpriced versus corn and need to drop 20 cents at least. New crop beans are about right compared to corn, but hold no adverse weather premium.

Canola – Farmers delivered 316,000 tonnes in week 44, exports were 128,000 tonnes, and domestic use was 149,000 tonnes. The visible increased to 1.19 million tonnes. Open interest in July is winding done but remains huge. This suggests to us cash canola is in short supply and exporters and crushers are holding futures against cash shorts. Statistically the canola balance sheets are tight for both old and new crop. There is no urgency to sell aggressively.

Flaxseed – While exports to the end of April are still 27.4% ahead of last years’ exports to date, the overall pace slowed in April to 41k mt for the month. China remained the biggest destination, followed by the U.S. We anticipate another shipment to Europe this summer, but so far only 4,000 mt have been accumulated in Thunder Bay.

Wheat . The surprise for us in the WASDE report last week was in wheat; their estimate increased by 2.62 myn tonnes. In our view, the USDA is still overestimating wheat production. Production should have been lowered, but the trade, which has a large short position in wheat, welcomed the numbers they released. Whilst the wheat numbers remain bearish, it is interesting to note that the trade covered a good slice of their wheat short this week. Trade was quite brisk in the Middle East where Egypt was active in taking advantage of cheap Russian offers for July shipment. Some parcels of feed wheat and durum also traded.

Durum – During the week, SovEcon noted that the new Russian tax could hit durum shipments originating from Russia; any wheat exported and priced above 11k Rubles per mt is taxed at 50%. Durum has ranged in price from 15 to 20k.

Barley – Weather is a concern in the EU and malting barley prices are very firm ion a lack of offers. The USDA reduced their estimate if world barley by 1.2 myn tonnes. Tunisia bought 50,000 tonnes of feed at $190 USFMT. Australian barley was stronger on El Nino fears and Chinese buying of new crop.

Oats – The lone material changes made by USDA in the report were an increase to US 15/16 beginning stocks of 2 myn bu to 40 myn bu versus 38 myn in May, and the US imports/supply-total increased by 2 myn bu to 212 myn bu. Their 15/16 ending stocks rise a correspondent 2 myn bu on the month (due the supply growth) to 38 myn bu; this is still 2 myn bu below last year but is 13 myn bu above 13/14.

Peas There are some important updates to be made on India. According to media reports, the Indian government is intending to get into the business of importing pulses to help offset the price impact of a sharp reduction in the size of their 2014/’15 pulse harvest. While it may be positive that the Indian government is planning to assure pulse supplies domestically, this plan has the potential to impact pulse market and trading in India substantially, and developments in this scheme will need to be followed closely.

Lentils – Weather in Saskatchewan remains a central issue. There were some showers Sunday night of ‘up to’ 20 mm in the northern grain belt covering Tisdale, Saskatoon, and Kindersley. We will have to see if this is enough to help or if there is more to come in Saskatchewan.