MarketInsight, March 7, 2016

Marlene BoerschMarket Insight

Major grains & oilseeds markets – There was some cash business to report for this past week: Egypt bought 180k mt wheat, Saudi Arabia bought 870k mt hard wheat, Algeria picked up at least 280,000 tonnes of durum wheat, mostly of Mexican origin, and China bought some soybeans. We expect more soybean sales to the Chinese will be reported to the USDA next week.

Speculative funds were huge sellers last week; that is a bit difficult to understand given there was very good buying in the outside markets.

The strength of the Brazilian Real and harvest delays have rallied soybean prices and made US soybeans very competitively priced against South American.

US futures closed a little higher at the end of the week after absorbing the heavy speculative fund selling. Weekly export sales for corn and soybeans were very good.

 

Soybeans – The beans closed higher as heavy rains delayed harvest in Brazil and the Real currency strengthened. US soybeans are fully competitive with South American origin and are available without loading delays. The corn/soybean ratio has strengthened in favor of soybeans; it is about right for old crop, but still undervalued for new crop.

Canola – Producers delivered 375,000 tonnes in week 30, domestic use was 161,000 tonnes, and exports were 211,000 tonnes. The visible supply stood at 1.518 myn tonnes. Canola remains very well priced for crushers compared to other oilseeds, which accounts for the 1.8 myn tonnes more than we have used versus the same period a year ago.

Flaxseed – There are some very good spot bids around in Sask., so shopping pays off.  For next crop year, we are projecting a 2% drop in acreage to 1.564 million acres. Our production forecast is 834,500 mt, about 100k mt lower than last years. Given we again anticipate to export 700k mt, this would still leave a carryout of 195k mt next crop year.

Wheat – This it is a difficult market to predict. On one side, we have a huge fund short. The funds have a record short at the start of the new growing season and there may be more short-covering to come next week. However, against this, we have a lack of demand, decent weather conditions and ample sellers. Perhaps prices are low enough to prompt a short-covering rally; we will have to see if this comes first.

Durum – Tunisia tendered and bought 75.0k mt of optional-origin. Algeria had results pending on a durum tender as well; this week it was announced they bought 280k mt to 400k mt of optional-origin for Apr/May (mainly comprised of Mexican-origin we believe). Current accounting of Canadian exports (by-week) shows our exports continue to lag; as of week 30 in the current 15/16 crop year, per CGC, Canadian durum exports of 2.864 myn mt are roughly 9% below the 3.153 myn mt exports of last year on this date.

Feed Grains – The world’s exporters have no shortage of corn or competing feed wheat, and there is no demand driver in feed grains with the possibility that 30 myn tonnes of barley, sorghum and DDG’s that were sold to China last year all likely needing to find other homes this year. However, funds also have a record short in CBOT corn futures, which are at low prices.

 

Peas Bulk exports were relatively small over the past two weeks at 35.5k mt. However, there are another 349k mt of peas in the handling system; adding these stocks and an estimate for container shipments to the YTD bulk export total of 1.748 million mt, adds to 2.24 million mt pea exports YTD. This leaves only about 450k mt to be shipped April forward until the new crop comes on board. Note that exporters will take care not to buy peas late this crop year that may have to be carried into new crop positions because of the old crop – new crop inverse.

Lentils – For new crop, all eyes are on seeding intentions in Canada, because the Canadian lentil production will have a decisive influence on prices next year.

There is some discussion about seeding soil moisture levels in Saskatchewan as the snow cover in the south disappeared weeks ago already. In general, there is decent starting moisture, but it will be critical to replenish the soils after seeding. It is likely that seeding will start unusually early.

[If you are interested in more background intelligence and our supply & demand balance sheets, pls contact Mercantile]