MarketInsight March 30, 2015

Marlene BoerschMarket Insight

Major grains & oilseeds markets –

The IGC warned the market to expect much lower yields than we saw in 2014/15, which may have incentivized the funds to do some short covering. Funds were big buyers last week buying 7 myn tonnes of futures through Tuesday. Cash trade was relatively active with about 600,000 tonnes of trade. However, any bullish sentiment from this was offset by very poor USA weekly wheat sales of 102,000 tonnes. Export numbers for corn and soybeans were to the low side also. Oil was a little stronger in the energy sector due to the problems in the Yemen. The dollar was a tad weaker whilst there was more Interest in gold as a safe haven or currency hedge.

We have some USDA’s reports this week; while we do not expect any great surprises we would prefer to watch markets at this time particularly when funds are buyers- follow the money.

Soybeans – Old crop bean futures are staying quite firm as it is proving difficult to build a stock of Brazilian soybeans due to strong farmer holding and trucking problems. What beans are available are being absorbed by the crushing industry.

Canola – Growers delivered 350,000 tonnes in week 33 and the visible increased to 1.64 myn tones. Exports were 90,000 tonnes and the domestic crush was 160,000 tonnes. The market weakened following three weeks of heavy deliveries from growers.

Wheat – It is no surprise that the futures pulled back when one considers the cash market reality; US wheat remains largely uncompetitive due the currency. Global wheat crops are also in good shape overall thus far. Our basis at home remains poor, the railways still seem disinterested in moving grain to port, and little remains in the way of demand for old crop in global markets. The balance of old crop Canadian feed wheat quality isn’t overly attractive as well, considering its high vomitoxin rate (8%), and is trading nominally at $195.00/$200.00. Corn is cheap, but feed wheat price is at least becoming more competitive in global markets, though EU-origin is dominating trade in those channels.

Weather holds the key with Europe and the Black Sea looking much more optimistic than a week ago, whilst the US still needs an improvement in precipitation in the Plains. Russia has until May 31 to make a decision on new crop export taxes.

Barley – Canadian barley does still offer value to our domestic consumers in our view, though it is difficult to source old crop at present as supply is tight. The Lethbridge price increased by $1.00 per mt this past week and that reflects localized cash market tightness, in our view. Looking forward, we expect we’ll see increased Canadian barley area this season.

Oats – Not much new to add here. Domestic basis remains poor, and it doesn’t appear much change can occur in the cash market dynamics until at least into seeding and beyond when both area and forward crop prospects are more defined. We continue to expect that both area and resultant output will increase this season. The cash charts for both nearby and into the new crop Dec period are not at all attractive in our view.

Peas With the prospect of increased pea acres in virtually all major pea producing countries and old crop–new crop price inverses, buyers will minimize their old crop purchases and also will try to wait out if the new crop price will drop further as the bigger acres are being seeded. Having said this, we expect that India will still have to come back to the market before new crop is ready as the Indian rabi pulse crop is expected to be down by a full 16%. – The timing of this will be important. If Indian buyers can hold out until new crop becomes available, the price effect of new purchases will carry a lot less weight than if they need more current crop product.

Lentils – Current crop trading is light at the prevailing high values, but there seems ‘steady’ demand for new crop. Given the big inverse between old crop and new crop lentils, this is not surprising. Buyers will try to stretch their supplies as far towards new crop as possible.

Transportation – Railway performance continues to be very poor. In week 33 the RR’s only allocated 20 percent of railcars compared to what was available to load. As a consequence the carryover will be much higher than the 10 myn tonnes Minister Ritz talks about.