MarketInsight February 23, 2015

Marlene BoerschMarket Insight








Major grains & oilseeds markets –

Given it was a short week; the market was quite active last week with soybeans leading the way. The forecast planted soybean acreage of only 83.5 million had the trade humming about beans. Note the economists did not point to a shift from corn but, rather, overall lower acreage of the eight major crops. The idea being that marginal land that had been brought into production during previous years with higher prices would arguably not be profitable at the forecast price levels.

Still, by Friday the three major grains closed lower again after the release of USDA’s regular new-crop estimates were deemed neutral for corn, but bearish for soybeans and wheat. May Chicago wheat posted its lowest close in over two weeks, ignoring this week’s cold temperatures and fighting in Ukraine. Soybeans closed down 8 cents in the March and down 9 cents in the May.

For the week the markets closed with 23-28 cent gains, corn with 6-8 cent gains, and wheat with 6-15 cent gains.


Soybeans – Fundamental news this week is reports of decent farmer selling in Brazil (this is hardly a surprise given that the Real is trading at 11-year lows) and good coverage by South American crushers. Harvest progress in Brazil is still lagging at ~15% against 21% on average at this time. On the buying side, the Chinese New Year’s Holiday results in an absence of buyers for the duration.

Canola – The canola market has been quite strong during the past week and has made two new contract highs in the nearby month. Unfortunately for growers, basis has declined a bit to offset some of the futures gains. The large open interest in March futures continues and it is going to be interesting to see how this is liquidated. Exporters and crushers are clearly long futures against product sales in our view. Open interest in the old crop futures continues to climb.


Wheat – Cash trade was relatively active with GASC (Egypt) buying 240k mt of wheat on Feb. 19th in addition to the 300k mt purchased on Feb. 3rd. Egypt again bought French and Romanian wheat 300k mt with US wheat loosing out. It demonstrates how unattractive US wheat is in the market with the US$ at its highest level in a decade.

The wheat market was lower on the week, with prices restrained by the high US dollar and by brisk EU exports of wheat during the week. Severe cold weather forecast for the US Plains and Midwest (that risks winterkill) was unable to provide much in the way of any support.

Barley – Malt – It is our view that China has already bought Australia’s exportable malt 14/15 supply. China continues to buy barley from wherever feasible (on the macro barley remains cheap versus available domestic Chinese alternatives). The poor Canadian crop of last season might mean better quality this year at home, though based upon current price, much like in oats, Canadian producers might need to “yield” their way to profitability this coming season. Our view for Canada looking forward is that current malt contract prices are low considering that carry into 15/16 will be tight if AAFC’s recent estimate is guide.

Oats – This market still looks weak to us; as stated previously, one could make an argument that it would probably pay a commercial to buy oats and to short another feed input as a long-term straddle play, but that is really in essence making the argument that oats represent perhaps the best play of a weak group – and as such this is not exactly a ringing endorsement.


Peas We still think that old crop peas will see the $9/bu level and would definitely contract some new crop at $8/bu due to the expected increases in pea acreage this year in Canada and Australia (desis), the USA, and Russia.

Lentils – There were only 500 mt bulk exports of lentils over the past week, though we note that there are 30,100 mt of various grade lentils sitting in a Pacific elevator waiting for pick-up. Container exports are also encountering all kinds of delays due to congestion of container vessels in West Coast ports. This is slowing the export pace significantly. At the same time, there is not much volume more left of this years crop than about 80k mt per month forward, and stocks have certainly started to feel tight now.