Major grains & oilseeds markets
The markets were again led last week by speculator/speculative fund selling. In the past two weeks they have sold nearly 30 myn tonnes of futures. In general, weather reports around the world have been good, so the selling combined with positive weather forecasts and harvest pressure from Europe resulted in lower markets.
Cash trading was very quiet and consumers were wary to take extended coverage. In the short-term we do not see anything that is going to turn the markets higher – unless the WASDE report this week contains some surprises or we have very poor weather reports.
Weather: The US winter wheat harvest was 58% complete. The intermediate-period 8/10-day forecast for the US Corn Belt trends hotter-and-drier, but traders and forecasters have differing opinions regarding whether or not any ridge can build to keep that weather in place. Canada got some heavy precipitation with near normal temps, while Europe was mostly dry with rain pushed NE into the Baltic. Argentina turned dry after a wet start, Australia got good showers, India is getting the monsoon rains it’s been looking for the past 2 years as the first week of July showed precipitation that was 35% above average, bringing relief for the driest areas, and with more rain on the way over this week.
Funds: Speculator/speculative funds were again the big players – selling corn, wheat, and some soybeans. They remain overall long and we don t expect them to go short. We still think they are too short US wheat futures.
Financial markets remain volatile following the UK Brexit vote. The US Dollar Index is higher, crude oil is lower, and high-grade copper is much higher overnight at the moment. In our view none of it makes much sense, as these should perhaps be left alone for a while and see where they settle.
- The soybeans look overpriced, but while index and spec funds have such large long positions, we are too nervous to sell beans. This market continues to be too volatile.
- We have a WASDE report this week and we do not have a firm idea of what the USDA has in their mind.
- We need bigger crops or bigger surpluses to be bearish.
- Canola is priced competitively with soybeans in both old crop and new crop positions.
- We expect crushers are now covered with their cash needs on new crop through December, and maybe January as well, so we will need to see exports ratchet up before we see any narrowing of cash under futures.
- We expect cash wheat prices to stay at current levels until the European harvest is over. Any bullish/bearish action will be in futures.
- The USDA Ag Attaché estimated Turkey’s 16/17 wheat output at 17.5 myn mt vs. 19.5 myn mt in 15/16.
- For Morocco, the Ag Attaché cut the 16/17 Moroccan wheat output estimate to 2.8 myn mt vs. 3.7 myn previously due severe drought.
- Per USDA, U.S. Durum acreage is up 11% from last year.
- The grains have seen very little activity, with the market is following feed wheat as guide.
- Pea production by major exporters is expected to increase by ~2 million, 1.4 million mkt of this increase should come from Canada. The 600k mt production increase in other origins means that there should be more competition by other origins in destination markets; this may affect price.
- Exports should start to pick up significantly with the onset of harvest.
- Mercantile expects global lentil production to increase by 31%this year over last year. Since 2009, global lentil production has increased by 70%. Note that until this year, the market has been able to absorb the substantial creases in production.
- We expect global lentil usage for next crop year by destination to increase by 15.5% over last year.
- Regarding potential demand for Canadian lentils this year by destination, we continue to look towards the three destinations that showed the biggest increases over the past 5 years: India, Turkey, the UAE.
- We expect Canadian ending stocks at a 24-29% stock-use ratio. This July we will achieve a stock-use ratio of only 4-5%.
- We expect a Canadian production of about 130k mt, up from 90k mt last crop year. There will be no problem to export our entire production this year.
[If you are interested in more detailed intelligence and in our supply & demand balance sheets, pls contact Mercantile]