Major grains & oilseeds markets
Given the world’s fundamentals for grains & oilseeds, the marketplace will remain fixated on seeding progress and crop conditions for a while, especially with several potential problems: Dryness across Spain, the UK and the Baltics and Ukraine. Add below normal temperatures except in Spain. The US Plains turned drier and warmer, while heavy rain and cold temperatures persisted last week across much of the Midwest and Delta. Canada turned warmer and drier but fieldwork has been relatively slow.
Fund reaction to the events unfolding will acerbate the market moves. Last week, Spec Funds bought about 9 million mt; all in grains and most of it in wheat (7.4 million mt). This still leaves them with a ~-49 million mt grains short.
Prices in Canada have been helped by the Canadian $, which fell close to 72 cents at one point last week. Canola prices went above $11.50/bu and spring wheat prices touched $7/bu in some places on a combination of the weather news and the low Cdn.$. High ending stocks plus good expected production in the world for wheat, corn and soybeans will limit upward moves, so major spikes like last week’s are valuable pricing opportunities for old and new crop product.
- On the one hand, US weather may bring a further increase in soybean acres at the expense of corn and spring wheat, but on the other hand, there is the risk of reduced acres due to ‘prevented planting’ should the cold wet conditions become really prolonged.
- Import duties on biodiesel look a done deal, a switch from blender to producer tax credits sits in the background, offering potential significant support to soybean oil.
- We expect the next USDA report on Wednesday. Traders are estimating 440 mln bu for US soybean ending stocks, with projections ranging from 417-513 mln bu. They are also expecting the USDA will show 584 mln bu for the initial 17/18 ending stocks number.
- The StatsCan stock report last Friday pegged canola stocks 23.3% below last year’s stocks at this time, and 9% lower than the 5-year average of 6.57 million mt. The trade’s average pre-report estimate last week was 100k mt higher at 6.7 million mt. This means Canadian canola stocks were 1% lower than expected, and 2 million mt lower than in 2016 at this time.
- In the markets, Pakistan buyers bought more than 100,000 mt of rapeseed that likely will come from the Black Sea region, but could come from Australia or Canada as well.
- The Canadian dollar clearly has been an important factor in domestic pricing: It dropped close to 72 cents last week before inching back up to 72 cents, giving cash values a boost. Cash prices for spot movement continue to linger above $11.50/bu. Tightening stocks are the second element in this development.
- Tightness in nearby supplies and weather issues will dominate the old crop canola market over the next while, though export sales have stopped. New crop seeding will have to be watched, but unless significant seeding delays develop, we are concerned about the new crop oilseed outlook.
- We still believe especially spring wheat has the potential to move up. We expect US spring wheat acres to be down, perhaps significantly by 1.5 -2 million acres (-12 – 17%). And there are various weather issues around the world, and Funds are still short.
- This market needs to be watched as it could develop sustained arguments for a more bullish market.
- Durum wheat stocks at 4.1 million mt were pegged up 50.8% from last year’s 2.7 million mt. The average pre-report estimate by the trade for durum was at an even higher 5.2 million mt.
- Saskatchewan seeding progress for durum was at 2% as of May 1st. The 5-year average is 8%, and last year it was 22% at this time.
- Corn remains about weather – slow Argentine harvest, dryness in Brazil and cold wet conditions in the US potentially persisting into June putting planting dates and final acres in doubt.
- Ahead of that comes Wednesday’s USDA report and the first world 2017/18 S&D’s.
- Finish old crop sales if not yet done so. Have some new crop peas sold, though we again expect good movement for peas again post harvest.
- We favour having some new forward crop 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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