MERCANTILE Blog: MarketInsight, Oct.24, 2016

Marlene BoerschMarket Insight

Major grains & oilseeds markets

Futures trading last week was fairly quiet with light volumes. Corn and soybeans traded a little higher while wheat was a little lower. There was quite good covering of wheat futures during the week. The Commitment of Traders report on Friday showed managed money accounts were net 4.5 myn tonnes less-short in SRW futures than a week earlier.

Weekly cash soybean export sales and shipments were both 2 myn tonnes in the report this past week. Meal sales were strong too.

Quality problems remain a topic; note reports now coming from Brazil concerning their wheat quality, and as well the very low export licenses issued by the EU this past week (suggests they do not have much in the way of exportable milling wheat).

Funds – Weekly data from the CFTC showed managed money accounts with a net long position that was 14,582 contracts larger than a week earlier.

The continued strength of the US dollar is a bit concerning for commodity prices and needs to be watched. The crude oil and the copper markets seem range-bound and are trading in small volume (and telling us nothing as such).

Soybeans

  • Funds maintained their long and added more last week.
  • Chinese buying of cash soybeans was light last week though we expect more registrations with the USDA in the coming week. Weekly export registrations were excellent confirming that China will need to buy US soybeans through to March.
  • There are continued heavy rains in Brazil plus devaluation of the Real against the dollar, which does not make the Brazilian producer an anxious seller. Staying long soybeans is like being long the dollar to a Brazilian producer.

Canola

  • Thunder Bay/St. Lawrence stocks have increased to 132,000 tonnes, confirming the larger program of shipments to the EU.
  • Canola is also a good buy for China so we expect the import license snag to be solved shortly.
  • The year-to-date canola exports are nearly 400,000 tonnes below last year at this time, but we still expect by year-end that exports will be higher than the previous season.
  • The markets are beginning to recognize that there is no quick solution to the tight palm oil stocks – and this will help high yielding oilseed crops like canola.
  • Canadian crush margins are as high as they have ever been.

Wheat

  • There is enough wheat, but the quality issue remains and is maybe getting worse due weather problems and harvest delays.
  • There was good short covering in US futures last week so in the short term we don’t see wheat going much higher.

Durum

  • Looking at Canadian durum exports, per CGC, as of week 11 in the 16/17 crop year, current Canadian durum exports are 670.0k mt vs. 540.3k last year on this date.
  • Global production will fall 700k mt on the season per AAFC to 38.4 myn mt; they forecast global 16/17 carryout will increase by just 500k mt to 8.8 myn mt – larger, but not burdensome. Quality will be in demand this season.

Feed Grains

  • The world has no shortage of corn (or feed grains), but charts are supportive, speculative funds covered nearly half their short last week.
  • US premiums continue to firm as producer selling slows. When the crop is under cover we could to see nearby corn futures trade close to $4.00.

Peas

  • The weaker Canadian dollar, difficulties by producers to deliver product, and the stronger grains and oilseeds markets all lend support as well, but the driver is increased demand potential in India to displace more expensive chickpeas. It also makes us question again, if India’s anticipated harvest is really as good as advertised!
  • We think there is nothing to be done right now. We would wait to see how the market in India and China develops from here.

Lentils

  • Two significant events are underlying the current strength in the lentil markets:
    • First, harvest progress over the past 2 weeks was negligible and per SAF and Alberta Ag, there are still 5% of Saskatchewan lentils and 12.5% of Alberta lentils out in the fields.
    • Second, there is a war of opinion over the CGC report on lentil quality and trader’s reading of available product, and what the CGC report has done to buyer’s perception of the crop.
  • The market is also currently pushed by buying interest for greens from the Middle East, especially Algeria. There is also interest from South America for large greens.
  • There are some excellent bids for lentils out there, and there is nothing wrong with booking them.

Chickpeas

  • 75% of Saskatchewan and 10% of Alberta chickpeas are still in the fields. Given current conditions, this is a disaster for the crop. Much of the crop may end up as livestock feed, which will be another problem for the popularity of the crop, just when we are getting improved varieties.
  • On the commercial side, there is some anxiety about being able to cover previous sales.
  • The Canadian crop is not large enough to influence the kabuli market, but prices will be very firm until the next Mexican and Indian crops come off.

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