Major grains & oilseeds markets
Last week’s release of the May WASDE report caused a lot of volatile in the futures market. It caused subsequent buying in the soy complex and shorts reportedly placed “get me out” stop-loss orders. There was nothing in either the wheat or the corn numbers that was particularly bullish, yet those markets followed oilseeds higher.
Looking at the oilseed numbers, there are actually quite a few questions one needs to ask before the picture becomes clear. Both the oil and meal supply situations get quite complicated.
- Higher world usage and lower bean production in Argentina mean you need to find meal crush capacity elsewhere
- The USDA estimate of increased palm oil output is very questionable and could mean oil supplies are overstated.
- Increased soybean imports to China and an increase in world meal usage make the soy complex tighter, particularly while the US crop is not in the bin.
- Cash trade in the markets was very limited.
- Funds: The funds reportedly held onto their large oilseed long and did very little to change their overall long in grains and oilseeds.
Weather: Cool wet weather covered much of central US. Central US was cooler and wetter than desired. High humidity continued to slow the drying down of Argentine soybean crops. Argentina was dry, while Australia got welcome showers.
Outside Markets: The outside markets are unusual; the US Dollar Index is up when it should be down due to stronger crude oil, copper is way down – suggesting little positive in China. In the short-term we can see a weaker US dollar which should help commodity prices.
- The WASDE report was considered bullish, particularly as we are now reliant upon very good weather conditions to produce the US crop.
- Funds reportedly hold a huge long position in the soybeans and they are in control. Shorts need to buy from the funds.
- The balance sheet continues to be tight and suggests to us that canola can trade in the old crop at a premium to soybeans.
- In new crop, while the situation in China is not clear, canola is too expensive relative to soybeans.
- Current crop brown flax traded at $12/bu livered SK plant for prompt delivery.
- Lackluster exports will keep ending stocks higher than last year’s at years’ end.
- There is still plenty of wheat around so we do not see too much happening in cash markets.
- Futures may see some strength if wheat follows protein higher.
- Global carry is currently expected 300k mt above last season at 7.9 myn mt;
- We’d advise pre-selling just a comfortable portion of expected new crop output.
Feed Grains –
- Slightly more positive in the WASDE report on the demand side (though stocks grew) – but any strength will be in futures if they follow oilseeds.
- Pea seeding in Canada progressed well, but there is some concern about the cold weather last week and about Alberta moisture levels. Weather will continue to play a key role in pulse market sentiments over the summer and fall, so we expect volatile prices for pulses.
- Given the high level of forward sales, the risk of defaults also looms large and could increase price volatility further.
- India: There has been some precipitation in the major growing areas, though the East coast regions and northwest regions remain moisture deficient and reservoirs are still only 22% full. Seeding for the next kharif crop should start in early June, with July the most important seeding month (~55% of total).
- Lentil prices also remained form due to diminishing stocks and continued demand from India and elsewhere.
- old crop, the StatsCan ‘stocks as of March 31/’16 report’ supported the sentiment that lentil stocks are literally running out.
- new crop, seeding in Canada is progressing well, though cold temperatures could hurt progress.
- Seeding in India (kahrif crop) will not start in earnest until the first week of June.
- Weather in North America and in Asia will play a key role in pulse market sentiments over the summer and fall; we expect forward prices to be volatile.
- We expect to see very good upside to kabuli chickpea markets/ prices this fall.
- We expect prices to stay flat for now unless there are production problems in Canada.
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