MERCANTILE Blog: MarketInsight, June 20, 2016

Marlene BoerschMarket Insight

Major grains & oilseeds markets

The week started with very strong markets on Monday, weakened at mid-week on a wave of profit taking and producer selling, before putting in a strong rally on Friday. Funds appear to have added to their overall long. Export sales for corn and soybeans were bullish.

Weather: Weather is now up on the radar screen and we have to wait and see if it gets as hot as predicted. But weather markets are hard to get right so it is a time to be cautious.

Funds: Index funds reportedly were small sellers while specs were huge buyers again of corn and wheat. This is the largest fund long in at least three years.

Outside Markets:

  • The US dollar index is weaker, Oil stronger again, Cdn. dollar up.
  • We will have the results of the UK referendum this week; if they choose to exit we could see a very bearish Euro and stronger US dollar.

Soybeans

  • We see a few more acres than the USDA, but even so, the balance remains tight and we need good growing conditions until the crop is in the bin.
  • The weather in July is key as early predictions suggest hot and dry; however, some of these reports are to be expected considering the huge long of the specs.

Canola

  • Producers delivered a whopping 425,000 tonnes in week 45, domestic use was 174,000 tonnes, and exports were 182,000 tonnes. The visible supply increased to 1.28 myn tonnes. These numbers confirm the crop was much larger than estimated.
  • Canola represents 26 percent of all terminal deliveries to the elevator system, and really illustrates how the old CWB system did not represent producer’s wants/intentions. Canola is the most valuable crop grown in Canada.
  • We hear Pakistan was a buyer last week of new crop cargoes.
  • We understand there are some Chinese visitors are coming to Canada next week and hopefully the dockage issue can be resolved.

Wheat

  • The Indian Government extended the 25% import tax another 3 months for private importers, Indonesia’s Millers’ Association put 2016 imports at 10 myn tonnes up from 7.4 myn tonnes in 2015, with an 80-20 milling-feed split (USDA is at 9.1 myn tonnes for both 15/16 and 16/17).
  • Soft red wheat is level money with corn in the Gulf, Black Sea feed wheat is almost $40 below corn in the nearby and $25 cheaper even in corn’s new crop positions. Wheat is buying demand from corn and soymeal.

Durum

  • In trade, Algeria reportedly bought 150k mt of optional-origin durum at $290.00-295.00 per mt C&F (the trade believes at least 100k could be of Mexican-origin), for Aug/Sept.

Feed Grains –

  • For the near future, corn futures are now a function of weather.
  • Although corn is losing demand both on the US domestic and exports markets, loss of yield is far more newsworthy and easier to trade. The market keeps in mind the USDA is using yield of 168 bushels per acre and a hot July can take yields dramatically lower as we saw in 12/13.

Peas

  • Given the present production assessments around the world, we think that while the pea balance sheet will certainly relax, there is a good chance that the stock-use ratio for peas by the end of 2016/17 will remain contained.
  • There likely is going to be significant price volatility forward.

Lentils

  • In Canada there is (buyer’s?) talk about 6 million and even 6.5 million Canadian lentil acres. Each 500k acres increase would add another 325k mt to the balance sheet.

Chickpeas:

  • ​Kabulis: Overall Supply and Demand is tight and the stock-use ratio is expected to tighten.
  • Much will depend on Russia. It still is cool and wet in the main growing areas, but weather is forecast to improve this week. – We expect kabuli chickpea values remain strong.

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