MERCANTILE Blog: MarketInsight, June 13, 2016

Marlene BoerschMarket Insight

Major grains & oilseeds markets

Wheat and corn futures were a little weaker following the USDA report, soybeans were unchanged.

It was a very uninspiring WASDE report; to traders it would appear that USDA has either ignored or considered irrelevant the recent weather and crop reports that have been featured in the futures markets.

Funds:

  • Speculative funds and speculators were big buyers during the week prior to the WASDE release and their actions need to be watched carefully.
  • Speculators added about 17 myn tonnes to their net long during the week making this their largest position for a long time. Obviously, they do not agree with the WASDE estimates.

Weather:

  • Weather needs to be watched closely, particularly in July.

Outside Markets:

  • The US dollar index was a little stronger, Oil weaker, nothing that will have a significant effect upon our markets in the short-term.

Soybeans

  • Funds now have huge positions in oilseeds, and the shorts and short futures hedgers are going to have to wrestle the funds to get them back. The WASDE report offered a reduction in carryover stocks and by extension reliance upon good yields of the US crop that was just planted.

Canola

  • Producers delivered a huge 370k mt in week 44, domestic disappearance was 143k mt, and exports were a respectable 193,000 tonnes. The visible supply was put at 1.1 myn tonnes. Stocks in Thunder Bay are shown as 95k mt, which indicates more exports to the EU.
  • We have revised our balance sheet and the 2015/16 crop looks like a whopper and could be even larger considering the deliveries in week 44.

Wheat

  • According to the WASDE report the crops get bigger. Friday’s report removed the urgency for funds to cover their short, and quality is now the only issue in the cash markets as weather moves up front and center.
  • However, in our view wheat is undervalued compared to proteins and other feed grains and we think the USDA is overestimating wheat production and feed usage.

Durum

  • Morocco’s soft wheat import duty is to be increased to 65% vs. 30%, from June 15-August 15, in order to protect domestic prices during their harvest. Morocco’s wheat output is expected light at just 2.6 myn mt vs. 8.0 myn last year, but their stocks represent a record 6.2 myn mt.
  • In Algeria, 2015 grain output increased 14.3% vs. the previous year to 4 myn mt; resultant Q1 2016 grain imports came in 9.5% below the same year-ago period at 4.39 myn mt. Algerian soft wheat imports increased to 2.17 myn mt vs. 2.12 myn last year; durum imports fell to 665.38k mt vs. 681.15k last year during the period, per their customs data.

Feed Grains –

  • Corn followed soybeans higher and will continue to take their lead from other grains and oilseeds.
  • The outlook depends upon how the weather goes; if yield were to fall to 164, the corn market may turn bullish.

Peas

  • Mercantile is in the camp of people that expects the pea market to remain positive for follow-up pea demand from the Indian subcontinent in the coming winter.
  • There will be a lot of volatility along the way. Reports of high yields in Canada, Europe, Russia, Australia (chickpeas), or difficulties with execution or contractual problems will be played in the market and lead to much discussion and volatility. The same is true for news on the monsoon progress and crops in India, and later on reports on forward contract compliance.

Lentils

  • There will be price volatility as various Canadian, Australian and Indian weather and crop condition reports come in over the summer. And it will take some definite problems that cut yields below average to move towards the lofty heights in prices we were able to enjoy this spring.

Chickpeas:

  • ​Kabulis: Production is down in Mexico and flat in Canada, but world production is due to rise following a steep increase in production in Russia.
  • Overall Supply and Demand is tight and the stock-use ratio is expected to tighten last year.

Canaryseed:

  • Emerging canaryseed crops seem in good shape. With the improvement in moisture there is a good chance for an above average crop. This may give exporters a chance to regain market share.

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

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