MarketInsight Sept. 8, 2015

Marlene BoerschMarket Insight

Major grains & oilseeds markets –

Prices continued to decline on the week under the weight of continued harvest selling pressure and a lack of consumer demand. Speculative funds were again sellers of wheat and soybeans. The only notable business was wheat into the Middle-East where North American grains remain uncompetetive. We have a WASDE report due to be released next Friday where the trade will be closely watching USDA’s estimates on corn and soybean yields. Informa raised their corn estimate to be equal to the USDA’s August estimate of 168.8 bushjels per acre. The majority of the trade is looking for a lower yield in the September release; if the USDA remains unchanged we could see Dec corn drop to $3.50 per bushel.

The markets continue to watch events in China while “recession” comments continue to circulate. In our view things are not as bad as then new services would suggest. It was a quiet week going into the long weekend.

StatsCan: Issued their estimates of Canadian stocks as of July 31. In our view “good math” is not a requisite requirement to work within this organization. We show the numbers “FWIW”, but we (and most of the trade) have little confidence in their accuracy. Canadian producers are very badly informed by Government statistics and it makes you wonder whether the stats they give us on Canadian economic performance are any better.

 

Soybeans – China continues to be a big buyer of soybeans despite concerns in the financial markets about the Chinese economy. We said a couple of weeks ago that we doubt financial concerns would have any slowdown on food imports and these export sales are reflecting that. At the lower prices of soybeans, it is more likely the Chinese buy more soybeans. In the last ten years the Chinesse import graph has only headed in one direction.

Canola – Producers have delivered 921,000 tonnes in the first 4 weeks of the year, which in our estimate increases the old crop carry-in to about 2 myn tones. This is more than we expected, so we have adjusted our balance sheet. Year to date exports are 638,000 tonnes, and domestic use is 553,000 tonnes – about 75k mt tonnes better than last year.

Flaxseed – FWIW, the StatsCan flaxseed stocks estimate as of July 31/’15 came in at 97k mt. Note that our carryout number is higher at 182k mt.

Flaxseed prices have been supported by the weak Canadian dollar, but now crusher and elevator bids from the U.S. are starting to decline due to harvest pressure south of the border.

We think that current bids still represent good value.

Wheat – Tenders continue to heavily discount paper markets – and the deferred carries erode as they become spot. It’s tough to call the bottom in wheat, but be careful of the fund short.

Durum – In Canada, the Sk. crop report estimated durum harvest progress at 44% standing, 4% in swath, 16% ready to straight combine, and 36% combined. Canadian quality and quantity results seem likely to set the pace for durum cash returns going forward. US cash prices have backed off a bit late due harvest pressure.

Barley – Feed grains depend on what the USDA releases on corn yields on Friday if they are the same as the August estimate corn could break to $3.50 on December. A yield of 166 bu/ac could see the market rally to the old support of $3.75.

Oats – We still view oats as a cheap feed input; the StatsCan estimates as well likely do not properly account for the amount of crop cut for greenfeed; but ending stock per these Governmental estimates though are likely slightly above 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 as such.

 

Peas We anticipate the next tranche of buying to start in late October and November for Nov/Dec and Dec/Jan’16 shipment. Much will depend on the level of demand from India and China (they collectively take ~67% of all Canadian peas), but we already know that the kharif crop pulses in India will likely fall short of their 7 million mt target by at least 1 million mt. This is why we are long-term positive the yellow pea market, but it will take a bit of patience. The lower Canadian dollar should be supportive to producer bids as well.

Lentils – Lentil prices for reds have softened a little, but on Friday there are still $35-36/cwt out there. These are still excellent prices for reds, and if yields were good, we would add 10-15% of sales. – We expect red lentils to remain firm, but there will be competition in the market November forward.

Green lentils will remain firm. We expect South American buyers to have to add on to their sales in October. South Americans struggle with low exchange rates, but have little choice in green lentil sellers.

Canaryseed – We continue to use about a 900 lb/acre average yield (perhaps too low?) and are using a 42k mt ending stock number for 2014/’15. If the yields are as bad as anticipated, then even with a 42k mt carry-in, the balance sheet is pretty tight given a 160k mt export level (165k m last crop year).

[If you are interested in our new crop supply & demand numbers, pls contact Mercantile]