MERCANTILE Blog: MarketInsight, May 30, 2016

Marlene BoerschMarket Insight

Major grains & oilseeds markets

It is a long weekend in the US and parts of Europe, which led to a relatively quiet week in the futures market this past week. The dollar was a little stronger which some saw as slightly bearish on commodities.

The five-year charts in our market report show that wheat and corn prices are not expensive, and soybeans have just about gone through resistance following the South American problems.

The problems in South America make it more critical that we have a good US crop.

Funds:

  • Funds were quiet – aside from the large specs (who added to their corn long).
  • The combined index fund and spec fund long position is close to 113 myn tonnes (a record), and their soybean long is more than twice the USDA’s projected world carryout for 15/16.

Weather:

  • The US saw another overly wet week and as the HRW harvest approaches; precipitation in the Plains may become an issue. US soybeans plantings were 56% complete (56% last year, 52% average) with 22% emerged (27% and 20% respectively).
  • Rainfall in Canada improved markedly but still more is needed in Alberta.
  • Argentina was completely dry and cool; Australia got additional showers notably in the south and east. India continues very hot and dry. Argentine plantings advance 2% last week to 4% complete.

Outside Markets:

  • Small rally in the dollar Index which could be seen a slightly negative commodities 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.

Soybeans

  • As long as the funds hold their protein long soybeans are not going to drop, and might take a further run to the next resistance level (which looks like $12.00 July).

Canola

  • Visible stocks fell to 1.069 mln mt (versus 1.137 mln mt previously). The July/Nov inverse seems to have collapsed and is showing a $5.50 carry at which level we are a buyer.

Wheat

  • There remain good supplies of wheat around and a good crop is projected.
  • However 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.

Durum

  • Algeria bought 130,000 tonnes optional origin durum at $290/mt C&F
  • The EU commission balance sheet update for May put EU-28 16/17 durum output at 8.819 myn mt; this is 3.5% above the 8.478 myn mt production in 15/16

Feed Grains –

  • Similar to wheat, feed grains will follow protein prices. Traders will watch the weather and progress of the US corn crop. Keep in mind July is a critical month in setting corn yields.

Pulses

  • The growing optimism for the Canadian pulse crop is being reflected in lower prices for pulses, both old crop and new crop.
  • The weather in India remained hot last week, with the highest temperature at 51 degrees Celsius in West Rajasthan on May 20th. The monsoon progress is still about 7 days behind normal onset.
  • Overall moisture is still very much in deficit in India. Reserves in the water reservoirs remain much below normal at 17% of total capacity versus a 79% average at the end of May.
  • The Indian government set its’ pulse production targets last week for 2016/17 at 20.75 million mt. This is rather ambitious. The previous record was 10.24 million mt in 2013/14.

Peas

  • Old crop prices are coming under pressure as the 2016 crop prospects look promising and we are getting closer to new crop peas in Europe.
  • New crop prices will be driven by crop conditions in both Canada and India over the summer. Conditions in Canada look good and India is waiting for the onset of the monsoon.
  • 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.

Lentils

  • “Rain makes grain”, and that certainly is the perception in the lentil and pulse markets this. 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.
  • Prices over the summer will primarily 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.

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 detailed intelligence and in our supply & demand balance sheets, pls contact Mercantile]