MERCANTILE Blog: MarketInsight, Oct.11, 2016

Marlene BoerschMarket Insight

Major grains & oilseeds markets

It was a fairly quiet week once again as the world watches US harvest progress. Weather conditions were quite good in the US, but were troublesome in Canada.

Cash trade in world wheat was brisk but prices were little changed – although fairly good premiums were paid for quality milling wheat.

The next WASDE report is due this week; traders will be watching the yield estimates for soybeans and corn

Funds Index funds reportedly continue to do nothing. Spec funds sold a little wheat, and bought some corn and soybeans during the week.

WTI oil broke through the $50.00 resistance level and at the same time the US Dollar Index rallied – which is the opposite thing that usually occurs. Copper is going nowhere and is reportedly trading in small volume. The US Dollar might impact commodities if it strengthens, but for the present the outside markets are not influencing commodity prices.

Soybeans

  • The WASDE report is due on October 12th; the market expects the USDA will raise their soybean yield estimate to 51.5 bu/ac and will increase the carryover to 413 myn bushels.
  • We continue to see Chinese crushers buying the market.
  • As long as the index funds hold their long, producers would need to sell close to 70 percent of their production by the end of December – which we think is too much and will keep the markets firm as a result.

Canola

  • Producers delivered 589,000 tonne in week 9, domestic use was 162,000 tonnes, and exports were 145,000 tonnes. The visible supply was shown as 1.5 myn tonnes.
  • We reduced our crop size a tad as we continue to hear of harvest problems affecting crops in Alberta and parts of Saskatchewan.
  • Exports year- to-date are 1.25 myn tonnes compared to 1.66 myn tonnes tonne last year. The 425,000 tonnes shortfall is mostly due to fewer exports to China. We are told that while 2 percent dockage is allowable to be shipped to China, so far there is a problem to open import licenses and at least one cargo has been cancelled.
  • If the Chinese continue to not issue import licenses this would be a problem for canola disappearance; hopefully it proves a short-term issue and will be resolved quickly.
  • We continue to hear of problems with winter sowing of rapeseed in EU and the FSU. If winter rapeseed cannot be seeded then it represents lost production as spring-seeded rapeseed in Europe does not yield sufficiently compared to alternate uses for the land.

Wheat

  • Good US export numbers are evident; US wheat is more competitive into the Middle East.
  • Quality remains a problem and more are becoming aware of the issue. In our view, specs remain too short US wheat futures and they are vulnerable; if so, futures will strengthen.
  • World wheat will have two markets this year, milling and feed wheat. Minneapolis looks to be the strongest wheat future given the low stock numbers the USDA had recently released.

Durum

  • left their durum yield estimate static vs. mid-Sept. at 46 bu/ac. Quality remains a concern here with fusarium/ vomitoxin an issue; good quality durum will be in demand.

Feed Grains

  • Not much change here; Dec corn is getting close to $3.50, if it is able to push through, then the next technical stop is $3.80.

Peas

  • Most commercials are now working with a round number of 5 million mt of available peas for the 2016/17 crop year, compared to about 3.9 million mt last crop year (+28%). The saving grace still is that Canada had an unprecedentedly large forward sales tonnage this fall of about 2.5 million mt, which is taking a large volume of peas out of the equation before the 2nd half of the crop year.
  • After being absent for the past while, buyers have now started to ‘enquire’ about offers for Jan./Feb.’17 and forward months.
  • Exporter bids for yellow peas for Dec./ Jan/ Feb.’17 delivery have strengthened somewhat to ~$7.25 in SK and $7.45/bu in AB.

Lentils

  • We estimate total Canadian lentil availability this year of 3.2 million mt, up from 2.7 million mt last year (+19%). Again, forward sales have been good, and this will help reduce supplies available for the second half of the crop year significantly.
  • Bulk shipping of lentils is progressing with 104k mt bulk lentils delivered and 67k mt loaded during week 9, for a YTD total of 177k mt. There are a total of 448k mt of bulk lentils on the move during week 9.
  • We note there has been renewed buying interest for red lentils for October shipment, which will be hard to execute in time. This is why grower prices for reds have appreciated back to $31/cwt for nearby delivery.

[If you are interested in more detailed intelligence and in our supply & demand balance sheets, pls contact Mercantile]