Major grains & oilseeds markets
The US markets are closed today; we were closed on Friday due Canada Day.
StatsCan’s report of lower wheat acres planted in Canada was ignored. There were few supportive inputs to be found in either the USDA stocks or 2016 acreage numbers for wheat or corn, but soybean acres came in below the market expectations.
Both corn and wheat markets sank on heavy spec fund selling before the report was released, while soybean markets were steady. We suspect spec funds were also sellers of corn and wheat on Friday following the release of the reports.
Weather – Canada was warm with widespread rains while much of Europe saw some needed drier conditions. The exceptions were the UK, the Baltic, Ukraine and Southern Russia where harvest was slowed, although the rain was beneficial for spring wheat. Rain also hit fieldwork in Argentina, Australia saw light showers. India’s monsoon covers the whole country but remains 12% down on normal.
Funds – The index funds position has not changed and we do not think it is going to. Spec funds were big sellers of corn and wheat but remain 36-myn tonnes long. In our view, funds are overly short wheat and this will need to be covered.
Outside Markets – Markets continue to be volatile following the Brexit decision. However it seems to us that traders seem to be ignoring that nothing can happen for at least two years and considering how politicians move these days its probably going to be much longer. Given this situation we see no reason for the dollar index to be higher or anything that’s bullish on oil. We expect markets to settle dow in the next couple of weeks.
- The markets did not see anything bearish in the USDA soybean planted area estimate for 2016; in fact, the estimate was lower than the trade was expecting. May 31 soy oil stocks were pegged at 2.466 billion pounds, just slightly lower than the average pre-report estimate of 2.496 billion pounds.
- In our view, oil stocks are getting too low and we could see a sharp improvement in oil prices going forward.
- Canola prices have recovered from their recent lows, though they remain undervalued to soybeans. Crush margins are quite good and canola is a bargain for the Chinese.
- StatsCan put Canadian canola area at 20.02 mln ac vs. the average trade estimate per Reuters’ survey of 20.1 mln ac (range was 19.3/21.0 mln); the estimate as such was slightly below the trade, but fell within the range of estimates.
- World wheat crops are getting bigger by the day, the July WASDE report will likely show stock increases for the world and major exporters, and further downside to cash wheat still exists
- In the area report StatsCan pegged 2016 Canadian durum area 4.8% higher y/y at 6.1 myn ac; this was right on the average pre-report trade estimate per Reuters’ survey of 6.1 myn ac (estimate range was 5.8/6.2 myn ac) and is 0.3% below StatsCan’s April estimate.
- Per USDA, U.S. Durum acreage is up 11% from last year.
Feed Grains –
- The grains are competing with wheat for feed markets and both are too low relative to protein prices.
- On peas, StatsCan expects that record acres were planted in Canada: 4.274 million acres in 2016 vs. 3.68 million acres in 2015; an increase of 16.1%.
- The StatsCan June estimate (4.274 million acres) was very close to their April estimate (4.25 million acres), and so did not pose a surprise to the markets.
- The pea reports cause no major departure from our earlier attitude about the market.
- The Statistics Canada report on lentils was not a pleasant surprise; StatsCan raised their acres from the April estimate of 5.14 million acres to 5.84 million acres in June; an added 700k acres! If true, this means that lentils occupy the biggest acreage of all pulses, surpassing pea acres for the second consecutive year. The 5.84 million acres would represent a 48% increase in lentil acres over last year.
- US lentil acres are reported to be up by 89% to 930,000 acres.
- Statistics Canada increased their chickpea acres by 60% over their April report from 100k acres to 160k acres. Are they more accurate now? We think so. The change will not matter much in the commercial markets because we still are a marginal player in chickpeas.
- We figure that at least 90% of chickpea acres are seeded to kabuli types, and this market remains tight into the foreseeable future.
- 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.
- Canaryseed acres dropped by 40k acres from 300k acres (April report) to 260k acres in the June report. This would represent a 20% drop from last year’s acres.
- We expect prices to stay flat for now unless there are production problems in Canada.
[If you are interested in more detailed intelligence and in our supply & demand balance sheets, pls contact Mercantile]