MERCANTILE Blog: MarketInsight June 6, 2016

Marlene BoerschMarket Insight

Major grains & oilseeds markets

It was again a very volatile week in the markets firstly led by soybeans then followed by corn as speculators and speculative traders bought 9.4 myn tonnes of corn futures during the week. Both corn and wheat sailed through resistance levels and will likely set new recent highs before settling down.

  • Weather around the world continues to be unusual and unsettled and this is adding more support to a market that needs a good USA crop this year.
  • There was little cash trade reported for the week as buyers were caught off guard by the rally in prices.
  • China bought old crop US beans as a result of the huge run-up in Brazilian premiums. This means lower 15/16 US stocks, and even lower 16/17 stocks.
  • The market is expecting the USDA to reduce their corn guestimates in the 10 June WASDE report and we suspect they will come closer to Mercantile estimates for 2016/17.

Outside Markets:

  • A key story is the weakness in the USD following a very poor US jobs report. The US$ weakness is quite supportive to US$ denominated agriculture prices. Crude oil is also holding around $50/ barrel and copper seems to have turned neutral.

Funds:

Speculative funds added another 9 mln mt to their long in corn and added 900k mt to SBN’s.

Weather:

  • A nearly stationary trough of low pressure over the S. West helped to focus heavy showers and locally severe thunderstorms across the nation’s mid-section. The heaviest rain stretched from the eastern Plains into the western Corn Belt and mid-South, slowing fieldwork but maintaining abundant moisture reserves for pastures and summer crops.
  • Argentina again looks completely dry which should enable harvest to advance, which is sorely needed, particularly in corn. Southern Brazil has rain, the rest is dry.
  • This week brings a needed drier spell for most of Europe’s main crop regions, with the notable exception of Italy, and southern Russia also remains wet. Temperatures remain near/below seasonal norms with no threat of heat.

Soybeans

  • The old crop market is very close to the $12.00 target we projected a few weeks back. Where we go from here depends entirely on what the funds decide to do with their long. Their long is more than four times the size that the USDA projected as the carry out.

Canola

  • Canola has lost value to soybeans but still is showing good returns and is attracting crush buying from China.

Flaxseed

  • Exports are still lagging the pace of last year’s by about 150k mt.

Wheat

  • There are still good supplies of wheat around and a good crop is projected, but there is more demand for protein, and while the situation for proteins remains unclear, wheat prices could find either consumer demand or short covering in futures that take prices higher.
  • Wheat is the one commodity where the funds are still short, and finding cash sellers of anything other than feed wheat in the current weather context may become increasingly difficult until the weather changes.

Durum

  • Persistent rains in France are clearly impacting durum condition there right now. FranceAgriMer rated French durum condition at 70% gd/vg versus 78% last week and versus 81% last year at this time.

Feed Grains

  • The southern Hemisphere corn surplus will start to hit the market in about a month, at about the same time as a large northern Hemisphere wheat crop could be looking for feed homes. However, the fund long was much bigger than expected.
  • The June 10 WASDE report is becoming increasingly important.

Pulses

  • Great strides were made in seeding in Saskatchewan and Alberta and pulses are virtually all seeded in Western Canada. The majority of emerged crops are either at or ahead of their normal developmental stages for this time of year.

Peas

  • Conditions in Canada look good and India is waiting for the onset of the monsoon, so there is not much to be added to the production analysis at the moment.
  • Weather will continue to play a key role in pulse market sentiments over the summer and fall and we expect volatile prices for pulses.

Lentils

  • Old crop lentil values have started to fall towards new crop values. For reds, the biggest lentil crop with the biggest acreage gains, both current crop and new crop prices have weakened. For current crop lentils this process will continue as we move towards first new crop lentils in Turkey next month.
  • Forward prices over the summer will primarily reflect growing conditions in Canada.

Chickpeas:

  • ​ We expect to see very good upside to kabuli chickpea markets/ prices this fall.

Canaryseed:

  • We expect prices to stay flat for now unless there are production problems in Canada.

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