MarketInsight Oct. 26, 2015

Marlene BoerschMarket Insight

Major grains & oilseeds markets – Cash trading was almost absent from the market last week although we did see some durum traded to Tunisia at a parity of C$11.00/bu FOB St. Lawrence or about C$9.35/bu ex elevator Saskatchewan. Export sales of soybeans were very good with the Chinese continuing to buy, as crush margins are good. The market is starting to feel like it believes Mercantile’s view that the WASDE estimates of Chinese imports are too low and is cautious about shorting soybeans.

Harvest in the EU and US is progressing well although we have no reports of damage done following Hurricane Patricia’s landfall.

The futures markets traded in a narrow range last week despite very heavy selling by speculative funds. Speculative funds sold nearly 15 myn tonnes of futures following reports of better weather and increased winter sowings in the FSU. This was the heaviest week of selling we have seen from funds for a number of weeks and would suggest that they are prepared to start new short positions at current levels. One surprising element was that they left oilseeds alone.

 

Soybeans – US soybean harvest jumped 15 points to 77% complete (51% last year, 68% average) with ratings unchanged and 96% of the crop dropping leaves. Traders are beginning to consider that the WASDE report underestimates Chinese buying for 2015/16. The corn soybean ratios undervalue soybeans and new crop prices will not encourage US plantings or advanced producer selling.

Canola – The market continues to wind down the open interest in November, but it remains quite large for this date. The AAFC balance sheet that came out last Thursday again makes little sense. AAFC have now revised their production number, but they have underestimated exports and crush as.

Flaxseed – Per AAFC on Oct. 22nd, this years’ flaxseed production increased to 870k mt (+2%). Supplies are forecast to rise by 2% on higher carry-in stocks and increase in production. AAFC forecast exports this crop year to be up by 9% to 800k mt. Remember, we disagree with this forecast and expect exports to be only around 655k mt flaxseed exports this year.

Wheat – The potential weather trouble spots around the world – US, FSU, Australia, all look to be improving. We see nothing in the short term that argues for an imminent rally in wheat. On Nov 1, CBOT and KC trading limits on wheat drop to 35¢ from their current 40¢.

Durum – In trade, at tender Tunisia’s state grains agency bought 167.0k mt of optional-origin durum for Dec; there was some suggestion that it was of Canadian-origin.

Feed Grains/ Barley – The grain market is very quiet. Consumers are using local crops first (exports of corn were a poor 248,000 tones for the week), while barley had few forward offers.

 

Peas The Gvmt. of india is once again trying to address the domestic supply side constraint with restrictive practices via limiting stocks in their market, but eventually they must realize that the answer is in productivity increases and not in stock limits. – While this is depressing prices in India in the short term, ultimately the S and D will have to come into play with and without restrictions.

Lentils – Lentil shipments and prices have been extremely strong. Especially bulk shipments are unprecedentedly strong at 260k mt YTD (143k mt last YTD), with another 109k mt of lentils held in the bulk handling system. These volumes are exactly what have been pushing prices. Red lentils now fetch up to $41/cwt, and good quality large greens up to $50/cwt.

Faba Beans – No change here; Canadian producer prices are around $7/bu.

Canaryseed – Per AAFC on Oct. 22nd, this years’ production is estimated to decrease to 118k mt (6%), due lower yields, offsetting higher harvested area. Exports are projected to be unchanged. The EU and Mexico are forecast to remain the main export markets, followed by South America and the US. Carry-out stocks are expected to remain tight.

 

Transportation – The Cdn. coal industry is in total disarray. Coal is offered FOB France at $40 per metric tonne – little more than the cost of freight from the Interior of Canada to the West Coast. Demand for Canadian coal from China (normally 25 myn tonnes per annum) has fallen dramatically and this is freeing up rail equipment for other products. Unfortunately, most of the nearby demand has already been done from other origins; it is likely rail cars should be available for some time.