Major grains & oilseeds markets
It was a very quiet week in the markets. Funds did virtually nothing and there were no major events to change the markets direction. At the weeks end we saw some profit taking which led us lower.
- The dollar was a little stronger which some saw as slightly bearish on commodities.
- Corn planting in the USA is proceeding in good order and should be completed by this weeks end.
- The weather forecast if for higher temperatures and increased rainfall.
- Soybeans are about 60 percent complete, so we do not need too much rain.
- It will be a quiet week with holidays in Europe at weekend so we expect market to trade unchanged to lower.
- Cash trading will be very slow.
- The dollar index was stronger which was considered negative to further increase in commodity price.
- Crude continues to be firm although we have heard that at the higher levels some fracking plants (oil sand) are considering opening which should keep levels below $50.00.
- High-grade copper continues depressed which makes trader negative on the Chinese economy.
- Funds did virtually nothing during the week they held on to their long and increased their long a touch.
- The US kept most rain in the south this week, with temperatures again below seasonal norms.
- NOAA’s US 3-month summer weather update showed near normal temperatures and near/above normal precipitation across the bulk of US crop regions and they made little mention of the much-hyped El Nino/La Nina transition.
- Temperatures in Canada warmed following the weekend frosts and the Western Prairies saw some needed rain and heavy snowfall in the Peace.
- Precipitation in Europe was near normal except the center-north (Poland and the Baltic). Argentina was cold and dry, Australia saw good showers.
- India’s monsoon will be a week late with the Government planning to divert rivers for both drinking and agriculture. In our view, the situation in India remains critical with report of temperatures hitting all-time record highs of 52 C in some areas.
- Funds held on to their oilseeds position and whilst the market is lower on some profit taking, we would stick with the funds and hold on for some weather scare to take the market higher.
- The visible reduced to 1.13 myn tonnes.
- In week 41 we had a good volume of canola going east which suggests more canola sales to Europe, which will make up for any shortfall in exports to China.
- The AAFC reduced their estimate of canola acres to be planted in 2016 whilst in our view we will now have more acres than we formerly thought.
- Even with more acres we expect crush and exports will be supply restricted so there is no need for growers to rush in for more sales.
- Canada exported 75k mt of flax during march, which was the 2nd best export month of the crop year. Still, YTD exports (420k mt) remain 14% behind last year’s volume (490k mt).
- Lackluster exports will keep ending stocks higher than last year’s at years’ end.
- According to the April AAFC report, flax acreage dropped another 455k acres to only 1.11 million acres; down from 1.64 million mt in 2015. This would represent a 32% in acres from 2015! Mercantile has a much smaller acreage reduction in mind.
- Black Sea crops increasingly look like they will surpass last year’s levels, and whilst northern EU vegetation maps have dipped this week, the forecast has additional rain next week. US crop look excellent.
- We see little optimism for higher cash markets.
- 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 –
- There was more trade in feed wheat than feed corn, probably due to the higher costs of protein.
- We do not expect this to change for a while feed wheat is better value than feed corn, especially in chicken rations.
- Prices should hold as long as the Funds hold onto their overall commodity long.
- We seeded about of 10.6 million acres to pulses in Western Canada this year. This amounts to ~14.3% of total acreage of all principal field crops in Canada.
- Pea markets have remained firm through the week as inventories tighten and the FX helps, but the recent rains in Saskatchewan and Alberta could ease forward markets a bit.
- Both the extreme heat and the delay in the arrival of the monsoon are bad news for India’s agriculture and the seeding of the next Kharif crop.
- We anticipate lentil markets to remain strong throughout the summer and fall of 2016. Prices over the summer will reflect growing conditions in Canada.
- Price developments beyond November 2016 for both red and large green lentil markets will be heavily influenced by the growing seasons on the Indian Subcontinent again this year.
- 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.
[If you are interested in more detailed intelligence and in our supply & demand balance sheets, pls contact Mercantile]