Major grains & oilseeds markets
Last week’s IGC report neatly summarizes the starting point to the new crop season for grains: There has been stock accumulation for 3 years and big old crop inventories are coming into the new crop year. This is causing the forecast 2017/18 supplies to remain very high, but not at a world record, due to a somewhat smaller projected 2017/18 production. The major oilseed (SBN) supply is expected at a world record level due to high stocks and still increasing production.
Stock numbers are mostly fixed now, so everyone is focusing on the production outlook for 2017. This is why the market will remain fixated on seeding progress and crop conditions for a while, especially while there are several problems threatening. Fund reaction to the events unfolding will acerbate the market moves.
Spec Funds continued selling grains last week, but basically stayed away from oilseeds. The overall 68 million mt short is the 2nd largest short they have held. The wheat short is a record large short at -29 million mt.
Caution remains the maxim in the grain markets with funds still potentially selling. The long term big picture simply has not changed: Big grain stocks and still increasing oilseed production. Without a serious weather problem in the northern hemisphere, market sentiments cannot change.
Weather is the key element right now for future direction in virtually all markets.
- US exports were well above expectations (-US inspections were 635kt (season total 1,797 Mbu, up 14%), sales were 808kt for a season total 2,074 Mbu up 24% on last year’s 1,666 Mbu-), but plantings were ahead of average although the bulk was in the far south with almost no progress in the major states.
- An improving, but still slow Argentine harvest pace, record Brazilian exports and Chinese crush have been the prime market factors up to now, but the focus now will shift heavily towards US weather and planting progress. With a fund short in the background ahead of the May WASDE report, the report will bring the first world new crop soybean S&D’s.
- In week 38 farmers delivered a big 411k mt of canola. Domestic consumption was at 193k mt, and exports were at 176k mt; total usage for the week was 369k mt. The visible was shown at 1.2 myn mt.
- Export loadings at the West Coast have been slow over the past couple of months due rain and export sales have slowed. But tightness in nearby supplies and weather issues will dominate the canola market over the next while.
- New crop seeding will have to be watched, but unless seeding problems continue, we are concerned about the new crop oilseed outlook.
- News about temperatures and seeding progress will be closely watched for Canada.
- Overall, several crop concerns we alluded to last week have not gone away: a) Dryness across Western Europe: Although the forecast for Western Europe and for France turned slightly wetter, Fridays/ French crop update dropped their ‘Good to Excellent’ rating of the wheat crop from 85% last week to 78% this week. b) Continued weather issues in North America: Late US/Canadian spring planting and a potentially high abandonment rate on US winter wheat, and c) a record Fund short.
- There are various weather issues around the world, values are relatively low already, and Funds have a big net short. This market needs to be watched as it could develop arguments for a more bullish market.
- StatsCan forecasts total Canadian acreage seeded to durum to drop by 16.9% (-1 million acres) to 5.15 million acres (from 6.2 million acres in 2016).
- This acreage was a little higher than expected by the Canadian and international trade (5.0 million mt).
- StatsCan forecast Canadian barley acres to fall by 8% (-510k acres) to 5.88 million acres, back to 2014 acreage levels, and on top weather is not cooperating.
- On the other hand, Canadian barley remains uncompetitive in export markets and remains a domestic affair, so the Canadian change does not really affect international markets.
- For current crop peas, we are well on target to achieve the Mercantile export estimate for the crop year of 3.5 million mt. These numbers also mean that ending stocks will be smaller than the AAFC estimate of 848k mt, and could well be as small as 300-400k mt, as we have been expecting.
- We think that a $9/bu (+) price level is a good opportunity to finish old crop sales.
- For new crop peas, the continued cold weather/ poor harvest progress in addition to last week’s StatsCan estimate of a 6% reduction in seeded pea acreage is creating a slightly bullish sentiment to the new crop market. The thinking is that very late seeding ‘could’ cause another reduction in pea/ pulse acres and also delay the bulk of new crop availability into September.
- On the flip side, this would also narrow the overall export window for the crop. However, we would not add to new crop sales at this time.
- We are biased towards the 15% acreage reduction because of the potential returns to lentils. We also note that US lentils will be up by ~122k acres, Australian lentils could be up again, and Russian & Kazakhstan lentils are called up this year due to expected good returns on lentils. Also, while we have also been impressed by solid demand over the past several years, pigeon pea production in India will be up this year.
- We still favour some forward sales on lentils at current prices, but given the smaller projected acreage, there is no need to add to new crop sales at the moment until seeding progress is much improved.
- We would make sure to finalize old crop lentil sales before shipping programs become very small.
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