MarketInsight May 4, 2015

Marlene BoerschMarket Insight

Major grains & oilseeds markets –

Last week was a very quiet week again in the grain markets. Weather and crop reports from around the world suggested near-ideal conditions and prospects for an early crop in a number of areas. In this, environment consumers felt no need to extend their coverage. Cash markets were restricted to some wheat buying in the Middle East, where no North American grain is competitive. Iraq decided to cancel its tender for hard wheat. Funds did virtually zero during the week in futures trade through Tuesday; however, we think they were sellers of both corn and wheat at the end of the week. Commercials reduced their short positions in corn and wheat.

Soybeans – Cash bids for soybeans in MB make them a good crop alternative to wheat based upon current new crop values. When the new plant expansion announced by ADM at Enderlin, ND, is completed, soybeans will become a very attractive crop in Manitoba compared to wheat. Trucking to Enderlin, ND, is much cheaper than to Brewster, MN. There is a lot of justification to building a soybean crush plant in Manitoba, even at a loss, as oil is not so important given that Canada is a meal demand market – not oil.

Canola – Producers delivered 302,000 tonnes in week 38, while the week’s exports and crush combined for close to 360,000 tonnes. Visible supplies declined to 1.395 myn tonnes, which is still quite comfortable for companies. Contacts tell us that the Government reserve canola stocks are rancid and unfit for human consumption and have been in this condition for quite some time. This information is now filtering into the markets. A Canadian cargo traded to China for June shipment last week and an Australian cargo for July.

Wheat – Major wheat export nations have increased carry-in stocks compared to last year. It is near impossible to find a weather issue in the Northern Hemisphere. For the present, there is no reason that compels consumers to take additional coverage. The funds remain heavily short with no reason to buy in, but as we move into the row crop-growing season, any adverse corn weather could spill over into wheat.

Durum – Nearby durum markets will be reliant upon seeding progress pace in both in Canada and in the US Northern Plains; the trade will also closely follow condition reports for Mexican and US desert durum.

Barley – EU old crop barley ended little changed despite the volatility in both Matif and the Euro currency. Brussels continued to churn out the exports with a final EU figure for the season above 8 myn tonnes now looking a real possibility. Rumors that the Chinese might suspend import permits for barley too the bloom off new crop prices.

Oats – It does seem possible that the recent Canadian area estimate will be revised lower in the future and there has been chatter of producers switching intended oat area into other crops. Oats at least had a fairly low cost of production working in their favour but profitability potential is declining as prices fall. At this point it may prove difficult to “yield” one’s way to profit. The new crop charts for Dec are ugly and show no sign of bottoming yet.

Peas Pea deliveries into the export system continued at a decent pace considering stocks are drawing down and seeding has started in many areas. Bulk exports for week 38 were modest at 17,300 mt, but still amount to 54k mt for the past 2 weeks combined. However, YTD bulk exports are still running at 143% of last year with a crop that was about 400k mt smaller than the year prior.

Overall, we expect firm pea markets and –if the problems in India are as large as they seem- a constructive balance sheet for the new crop season as well. There is no harm concentrating on seeding for now.

Lentils – Prices have been extremely firm for all classes of lentils. Stocks of any quality are being drawn down and demand has continued to come in. We expect this years’ lentil ending stocks as low as 74k mt; a low 4% stock-use ratio. Don’t forget to get rid of all current crop lentils before trading stops due to lack of stocks.   New crop contracts are attractive (especially with AoG) and we would ensure to forward-sell 15-20% of expected production for fall delivery and the sit tight.

Transportation – The Canadian railroads only supplied enough cars in week 38 to lift 16.5 percent of the grain that was in Primary elevators. AAFC’s export numbers are unlikely to be achieved.