MERCANTILE Blog: MarketInsight, June 27, 2016

Marlene BoerschMarket Insight

Major grains & oilseeds markets

The markets fell sharply this past week, based upon some rain in the corn area, less heat in the forecast, on selling by speculative funds, and following the UK referendum to leave the EU. The combination of events combined with producer selling was too much for the markets and weighed upon price. The markets did not expect the UK referendum result to be for the UK to leave the EU. The combination of rain in the corn belt, spec. fund selling and the Brexit hit the markets hard and will take some time to settle.

Weather: Canada saw more good rains with warm temps, while Europe pushed the rain into south-central regions leaving needed drier conditions in France and N Germany. Ukraine and S Russia were mostly dry with temperatures everywhere turning warmer. Argentina was again completely dry, S Brazil got heavy showers, Australia’s major crop regions continued to see timely rainfall while India’s monsoon gradually moved north but remains 18% below normal.

Funds: Index funds added 2 myn tonnes to their overall long while specs sold about 20 myn tonnes, following Brexit, primarily corn and soybeans. The recent break has hit the index funds hard they have lost 2 byn dollars of equity since the highs of the market.

Outside Markets:

Brexit was the story of the financial markets and it is not over yet. When you have big changes like the UK exit from the EU, you can expect market extremes before they settle.

 

Soybeans

  • We think the break is overdone and see no reason to sell current levels. The soybean balance sheet remains supportive in our view and the fund long remains large.
  • Weather over the next 60 days continues to be critical.

Canola

  • The canola balance sheet remains tight even though this year’s crop was obviously larger than estimates.
  • There is no reason for canola products to now be at a 9.5 percent discount to soybean products.

Wheat

  • Wheat took the brunt of the markets bearish sentiments although selling was quite light.
  • We don’t see much of a rally in the short term as harvest selling from the FSU hits the market.
  • Quality is going to be an issue.

Durum

  • In trade, SAGO (Saudi Grains Organization) tendered for 300k mt of optional-origin 12.5% protein durum wheat for Sept and bought 315k mt of EU, North American and Australian origin (at seller’s option) at prices ranging $203.40/$207.85 per mt C&F, for Sept.

Feed Grains

  • The spec funds were big sellers of corn, but they still hold a large long, as do the index funds. The market took a big hit, which we think is overdone.

Peas

  • Given the positive outlook for the crop, grain buyers report that, as the yield outlook improves, there has been significant selling pressure by producers this week, both for current crop and for new crop peas.
  • Current crop peas should long be sold out and there is no excuse to carry out expensive peas into a lower priced new crop period.
  • For new crop peas, you should already be sold a good percentage of the expected crop.

Lentils

  • Regardless of the lack of precision of the StatsCan reports in recent years, an acreage number for Canadian lentils greater than 5.5 million acres will not be productive. Combined with excellent crop conditions in most areas, the resulting production number will prevent potential buyers to add to their purchases until more is known about the true size of the crop.
  • Producers should be long sold out old crop lentils (there is no excuse for varying current crop lentils into a weaker new crop price environment), and should also be sold a good %age of expected new crop lentil production.

Chickpeas:

  • ​Kabulis: Overall Supply and Demand is tight and the stock-use ratio is expected to tighten to 3% from 4% last year.
  • 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.

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.
  • 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]