Major grains & oilseeds markets –
The WASDE report contained some items that were contrary to most expectations. They raised the soybean yields when the market expected a lower yield, they lowered the corn yield (that was considered a surprise to some while not low enough by others), and they increased world wheat production. On first look, it was a bearish report, but upon reflection, looking at the world picture, the report lowered the ending stocks for feed grains and oilseeds, which is supportive. The market is also of the belief that the lowering of the corn yield in the September report could mean more corn reductions to come.
Markets continue to be under “harvest pressure” so we do not expect cash markets tom surge up in the short term.
Soybeans – We think soybeans are undervalued presently, and assuming corn can hold above $3.75 per bushel on Dec, then Nov beans should be around $9.10 per bushel.
Canola – Producers delivered 309,000 tonnes in week 5, exports were 102,000 tonnes, and domestic usage was 221,000 tonnes; visible stocks stood at 1.030 myn tonnes. Stocks in transit to the west coast were light at 75,000 tonnes, as the railroads only delivered 700,000 tonnes of railcars in total while the stocks in primary elevator were 2.9 myn tonnes. We are going to have rail problems again this year, just wait and see.
Flaxseed – According to SAF flaxseed was 7% harvested as of Sept. 7th, but should be more advanced after this weekend. SAF yields are at 21 bu/acre. This is very close to StatsCan’s assessment of 20.9 bu/acre.
Wheat – Despite the previous week’s low prices to GASC, the Black Sea seems to have stabilized higher, although based upon the WASDE numbers there is still little reason for any sustained rally. Iraq paid a good premium for better quality Canadian wheat.
Durum – We expect 15/16 global output will come in modestly above 14/15 as the EU crop escaped harvest intact. Global 15/16 carry-in is modest and stocks should remain fairly tight when viewed historically; Canadian carry is on pace to decline as well.
Feed Grains/ Barley – The USDA brought a pause to the corn market with concern over further yield declines, and there exists the potential reluctance of US producers to sell corn below production costs. That the report did decrease the corn yield gave support to corn bulls who still think that WASDE is overestimating US corn production, and there could be lower corn yields in later WASDE reports.
Oats – We still view oats as a cheap feed input. Ending stocks per the StatsCan report are likely slightly above both last year and the average, and that is what the market will trade for now. Expect cash prices (or at least basis) can eventually improve though because they are too low relative to the current fundamentals and risk that forward area will decline.
Peas – The handling data for peas is excellent for the first 5 weeks of the new crop year: Close to 1 million mt (987k mt) have already been delivered into the elevator system by producers, 450k mt of which have been delivered into export position. This is 18% and 37%, respectively, ahead of last years’ numbers. And 414k mt have been loaded onto bulk vessels YTD, 20k mt (or 5%) ahead of last years’ pace. Good export movement during the first 3 months of the season is important as it draws down available supplies before the general slow-down over Christmas and it tends to keep commercial stock levels low.
Lentils – Like peas, lentils have been moving into export position at an excellent pace. YTD 181k mt of lentils have been delivered into the handling system. This is 117k mt ahead of last years’ pace. In spite of the excellent movement of lentils, prices have softened a little as shippers deal with harvest pressure and the realization that yields are better than many expected. Longer term, we still expect lentil values to remain firm as supplies will be down and exports will have to be curtailed over last years’.
Canaryseed – Getting a good reading on average yields will be key to this market. If yields are indeed above 1,100 lbs/acre, then this is not bullish input.
[If you are interested in more background intelligence and our new crop supply & demand numbers, pls contact Mercantile]