MERCANTILE Blog: MarketInsight, April 18, 2016

Marlene BoerschMarket Insight

Major grains & oilseeds markets

Reports: There were no surprises contained within the USDA WASDE report. The WASDE report noted an extra 1 myn tonnes of global wheat carryover and 2 myn tonnes of additional feed grain supply. Global oilseed carryover was left unchanged. The WASDE report was neutral to the market.

Funds: Speculative funds reportedly bought close to 7 myn tonnes of soybeans and soymeal. This together with adverse weather in Argentine led soybeans to continue their upward rally and also reportedly encouraged a lot of stop-loss buying. Funds now own 30 myn tonnes of soybean futures, 1.1 byn bushels, or twice the size of the USDA projected carryout for the US.

Cash trade in feed grains and wheat was quite good at slightly better prices. Hard wheat traded at a substantial premium to soft wheat for Iraq.

The markets have a more positive tone and we expect prices to remain strong next week. The relative strength levels are in neutral territory.

Outside Markets: Outside markets are more positive: Oil prices are down and reportedly could trade in a $35.00/$42.00 range. The US Dollar Index was a little stronger and copper was about unchanged. The forecast for China is for 6.7 percent growth per annum which most countries in the G7 would be very happy with. We do not see outside markets having much effect on our markets.

Soybeans

  • The WASDE report was uninspiring while reports out of China suggested the USDA is too low on Chinese soybean imports by at least 4 myn mt. In our estimate, we use 90 myn mt for 2016/17.
  • In cash trade, USDA reported private export sales of 132.0k mt metric tons of 16/17 soybeans for delivery to China.
  • The ratios are about in line considering weather is an element that might reduce soybean production.
  • Weather concerns in South America and continued fund buying proved very supportive to the soy complex and reports out of Argentina are suggesting a potential loss of up to 11 myn mt of soybeans. This seems way too much but it got the markets attention and prompted some stop-loss buying.

Canola

  • Canola bids are all over the place; we have heard of trades as high as $11.25 per bushel. It pays to shop around.
  • Canola continues to be well priced to other oilseeds for the crushing. It has lost a little value due to weaker oil but historically we are still close to our all-time lows compared to soybeans.
  • We see no reason to accept anything below $11.00 per bushel for old and/or new crop canola.

Wheat

  • Iraq bought 50,000 tonnes of Aussie wheat at $251.50 (would have been a good Canadian sale), despite US-origin having been the cheapest offer at $23.
  • Old crop stocks remain heavy and demand is fading, as major importers get closer to their own harvests. In our view, the large spec short in wheat appears vulnerable.
  • Overall, the new crop prospects remain favourable but the markets are starting to watch dryness in Canada and Australia, along with the excessive Argentine rains.

Durum

  • Canadian 15/16 durum exports thus far remain slow, though recent sales were made to Algeria.
  • US carry grew slightly in 15/16, and AAFC currently forecast Canadian 16/17 carryout would increase by 200k mt on the year to 1.2 myn mt, but we have long-held that durum carry is tight and will remain so, and we expect AAFC’s carryover estimate will prove liberal.
  • Global carry is currently expected 300k mt above last season at 38.9 myn mt;
  • We would advise pre-selling just a comfortable portion of expected new crop output.

Feed Grains –

  • The grains will continue to follow soybeans and the weather in South America still looks poor for harvest and plantings.

Peas

  • The overall outlook is dominated by low carryout stocks combined with a high early delivery demand and by sales to the Indian subcontinent.
  • The outlook for the shipping season after November is decidedly less clear, so good risk management tools for the coming marketing year are early, early harvest sales and deliveries.

Lentils

  • Contrary to peas all lentil type stocks are depleted and there are still new crop pricing opportunities, particularly for red lentils available in the range of 33-35c/lb.
  • Speculation on actual acreage planted to lentils seems to be going wild with speculation of 6-7 million acres in circulation. However, the mainstream consensus is settling somewhere around 5 million acres planted. Traditional lentil growers will be able to support limited increases only.

 

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