MERCANTILE Blog: MarketInsight, July 25, 2016

Marlene BoerschMarket Insight

Major grains & oilseeds markets

Weather reports from around the main growing areas suggest good conditions and improving crops. It is difficult to find anything bullish with this kind of news. Understandably, there are few anxious to take on long futures and end users have no wish to extend coverage. There are reports circulating that the US corn yield could be as high as 173 bushels per acre. We did have heat in areas of the US, but apparently not enough to cause problems. Early forecasts for next week suggest more heat and dry weather, but with the conditions reported elsewhere, we do not think the market in Chicago will react too much.

Funds: The big carrying charges in futures require index funds to put more equity into the market as they roll futures forward, and that equity is not available at present; therefore they are forced to reduce their futures long. The only futures which show any signs of life are wheat where spec funds have a large short to cover.

Weather: Quality problems may have taken some of the EU countries out of the wheat export market, which could make short hedgers in the US futures markets vulnerable.

Soybeans

  • Soybeans suffered from reports of ideal weather conditions and suggestions the WASDE report underestimated yields.
  • Funds still hold 34 myn tonnes, so in our view this market still contains volatility; caution is likely warranted here and we use stop-loss orders under such scenarios.

Canola

  • Reports from the country suggest that of all crops, canola looks outstanding and people are talking big yields. It will take producer holding to improve prices so we hope most producers took the opportunity to forward sell. If not, and we get a rush of harvest selling, in the short-term canola is bearish.
  • Canola is well priced compared to soybeans for overseas crushers but we will need a comment regarding the China dockage issue to get support back into the market.

Wheat

  • Feed wheat is bearish; higher quality wheat could be in demand if the EU quality is as bad as some report.

Durum

  • In the balance sheet update for July, AAFC increased their 16/17 Canadian durum production estimate by 100k mt on the month at 6.2 myn mt.

Feed Grains

  • The futures prices will follow wheat and what the index funds do with their long. In the short term we expect the index funds to do some selling.

Peas

  • Peas seem to weathered it much better so far and the expectation still is for above average yields on peas.
  • Australia has also seen excellent moisture levels everywhere now. Queensland received lots of late rain and therefore there were a lot of additional desis planted late. This will provide competition to Cdn. peas in the Indian mkt. Nov/dec forward.
  • Pulse planting in India (Kharif crop) is proceeding very well.

Lentils

  • Given current estimates, the Canadian lentil crop roughly represents a full 56% of this year’s world lentil crop, so a lot of attention is given by the market to the wellbeing of our crop. The reaction of buyers to crop concerns in Saskatchewan so far has been pretty contained because “there are so many acres out there, it is hard to make a dent into production”.

Chickpeas:

  • We have not had a chance to look at chickpea acres specifically, but the crop was likely affected by moisture in a similar way as lentils. Given the low carry-in (due to improved exports during the second half of this crop year), the small Mexican crop (down for the 4th year running) and good demand for Kabulis by our American neighbours, there will be no problem marketing our kabuli crop.

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