Major grains & oilseeds markets
The USDA WASDE report last week proved to be of little consequence. They did increase the soybean yield estimate and lowered the corn yield – which was expected. The USDA increased the world wheat production estimate by 1.5 myn tonnes but world stocks were reduced by 4 myn tonnes this month on a 4 myn tonne increase in world usage; wheat stocks will increase 16/17 per USDA by over 8 myn tonnes basis USDA’s usage number for this year (Mercantile believes USDA’s usage estimate is too low). Significant damage has been reported to the Canadian wheat crop at harvest; the consequence will be that this year’s exports of milling wheat exports will likely rank amongst the smallest ever.
The soybean estimates were much as the market expected; however, we can ignore the large carryover that is projected for the US in the short-term while demand is sizeable and while South American crops have a lot of growing to do.
Funds: Spec funds reportedly bought in the corn they had sold prior to the release of the WASDE report (as we expected), sold some soybeans, and bought wheat. In our view they perhaps considered the WASDE report as neutral to slightly bullish grains, and would expect they may be looking for short-covering opportunities rather than being outright sellers.
- We expect to see China register more soybeans with the USDA next week, and we do not see the WASDE report as overly bearish. This time last year USDA called the US carryout 425 myn bushels, whereas basis the September estimate the carryout is 195 myn bushels. Once again we think the USDA is underestimating demand for US soybeans.
- Canadian canola is well priced to trade as seed to China or the EU or is the most competitive source of export oil. We understand the Canadian crush is sold out through December and now has good interest for Jan-March shipments.
- Canola continues to offer excellent value to the crusher compared to other oilseeds and demand will be good. Domestic crush margins are in excess of $100.00 per tonne using a basis of $20.00 under futures.
- While world stocks excluding China will decline by 5 myn tonnes, the world wheat market needs some new crop acreage/weather issues for the big picture to change. Quality however will remain an issue this season.
- In our view milling wheat will be in short supply and we expect price increases in Kansas and Mpls vs. Chicago and expect better resultant cash premiums for quality wheat.
- Quality durum is going to be in short supply so “when the best is gone, the best is left”; don’t be in too much of a rush to get rid of low quality unless you are sure it is no better than feed.
- Prices are low enough to create an increase in demand and weekly export numbers are showing this. Corn will have to compete with feed wheat so we do not see a lot of upside for the present. Once harvest is over and stocks go in the bins, we could see Dec CBOT trading at $3.50 per bushel.
- Prices have been soft. This is because yields look higher than expected, while there is very little opportunity for new sales in international markets. In fact, the current lack of fresh demand is a direct consequence of the big forward sales volume concluded earlier and has been compounded by the hugely improved excellent crop outlook for pulses in India and also in Australia. In other words, there is very little incentive for the big buyers (India & China; they took 75% of all Canadian pea exports last crop year) to add to their purchases for a while.
- We think it is unlikely we will see new ‘volume buying’ coming back to the market until January/ February 2017.
- The quality of later harvested lentils remains a prime concern, and it is hard to assess the impact of the large volume harvest without yet having a clear picture on grades.
- We think that good quality lentils will continue to command a significant premium, while there will likely be price pressure on low grades.
- Supply and usage remain fairly closely matched.
- We can not see prices falling from current levels as there is no visible surplus this year, and should harvest problems develop, there clearly is room for price increases.
[If you are interested in more detailed intelligence and in our supply & demand balance sheets, pls contact Mercantile]