MERCANTILE Blog: MarketInsight, April 25, 2016

Marlene BoerschMarket Insight

Major grains & oilseeds markets

It was an incredible week in the futures markets. It began with panic buying as stop-loss orders were hit and reportedly forced an extraordinary rally in the markets. At the end of the week index funds decided to sell and this combined with some profit-taking reportedly crashed markets on Friday. Wheat and corn futures ranged 40 cents per bushel plus while the range in soybeans was slightly smaller.

Weather: There is no question that the heavy rain in the Southern Hemisphere has affected production, but by how much remains uncertain.

Funds: Spec funds reportedly reduced shorts in both wheat and corn, which lead to the huge rally in futures, while the index funds reportedly were sellers of wheat on Thursday and Friday.

Outside Markets: Strength in crude oil and high-grade copper has been notable over recent days, which suggest either Chinese buying or the markets view that the Chinese economy may be stronger than previously thought. We don’t see anything negative to our markets from outside elements.

Soybeans

  • Panic stop-loss buying based upon South American losses reportedly had the futures markets jumping last week. Soybeans rallied more than 60 cents per bushel before dropping 30 cents on Friday. There are various reports of damage in the Southern Hemisphere which range-widely. It will be sometime before the picture becomes clear, and in the meantime the weather reports continue unsettled.

Canola

  • StatsCan released their estimate of planting intentions for 2016 – which most in the trade find too low.
  • Since April 11 there has been a huge unwinding of open interest in the May, which has been rolled as far forwards as November. We have an inverse between July and November, which could get wider going forward. The stocks number for March 31 could influence how much this inverse could potentially go.
  • The Chinese dockage issue has not been sorted out, but it does not seem to be limiting trade. We hear reports of at least four cargoes trading to China recently. The trade now expects Chinese imports for the 2015/16 campaign to be at least 3.5 myn tonnes.
  • The balance sheet continues to look very tight however we do expect the crush plants to take some early shutdown time as supplies dwindle.

Flaxseed

  • The StatsCan report on acreage last week called for a big 32% reduction in flaxseed area to 1.1 million acres. Instead, Mercantile is anticipating a much more modest 2% decrease in acres to 1.56 million acres.
  • old crop flaxseed, exports continue to lag last years’ significantly. To the end of February, Canada had shipped only 345k mt of flax, 16% (65,561 mt) less than last year to the end February. There is little chance to catch up to last years’ levels, never mind reach the 800k mt exports that AAFC forecast earlier

Wheat

  • Unlike corn and beans (which arguably had at least some perceived fundamental issues), the rally in wheat was purely fund-driven. Global old crop stocks of cash wheat are adequate and Northern Hemisphere weather generally favourable which are not supportive of a major cash rally.

Durum

  • We think 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’d advise pre-selling just a comfortable portion of expected new crop output.

Feed Grains 

  • The outlook depends on the weather; we expect volatility.

Peas

  • The StatsCan acreage estimate came in at 4.28 million acres, a full 16.3% or 600,000 acres higher than what was seeded to peas in Canada last year. The Canadian trade’s pre-report estimates as garnered by Reuters Canada ranged from 4 to 5 million acres, so the estimate came in at the lower end of the range, but above our earlier 4.1 million acre number.
  • The potentially record export sales volumes next crop year will provide producers and the trade with very good sales opportunities.

Lentils

  • StatsCan is forecasting 5.14 million acres, a full 30% or 1.19 million acres higher than last year. This is also 21% larger than the pea acreage (+890k acres). The trade’s pre-report estimates as garnered by Reuters Canada ranged from 4.4 to 5.5 million acres, so the estimate came in closer to the high end of the range and above our earlier 4.9 million acre number.
  • The potentially record export sales volumes projected for next crop year should provide producers and the trade with very good sales opportunities, but with 41% of all Canadian lentil exports shipped YTD to India alone, the lentil market is highly dependent on what happens to production and demand there.

[If you are interested in more detailed intelligence and in our supply & demand balance sheets, pls contact Mercantile]