Grain Market Update: All Eyes on China

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Major grains & oilseeds markets – The eyes of the world were still on China this week as their stock market crashed and provided lots of financial drama. China’s economy provides the dragon’s share of demand for all of the world’s raw materials, so the ‘Chinese problem’ is especially serious for economies like Canada and Australia - whose own economies are built upon the shipment of raw materials. 

China's economy and its impact on the macros will keep the markets choppy until the US gets some hard yield data for both corn and soybeans (still 2 weeks away).

Outside markets were generally supportive by the end of last week, especially the big spike in Brent, which certainly helped canola and soy oil directly & and commodities in general.

Spec funds sold 4 myn mt to take the all-4 commodity position to -11 myn mt. That is not that big a commitment for them.  "Biggish" is -25.  Record short is -52. Almost all of the selling was beans, taking them to a small short bean position for the 1st time since mid-June. 

Soybeans - In oilseeds, the US saw a better week of export performance; and US origin soybeans are now the cheapest origin through December. Next week's hotter drier forecast may bring stress to the soybean crops.

Canola -  Canola is following the dominant soybean market. A cut to the opening stocks estimate for SBN’s and an increase to the usage guess lowered 15/16 bean ending stocks by nearly 4 mln mt on the month - though at 44 mln mt they are 1 mln mt above last year and still represent a record carryover that will compete with canola.  Global ending stocks for rapeseed were put at 6.9 mln mt last year, and are expected to drop to just 3.4 mln mt for 15/16. This would be the lowest carryout since 03/04. So we can see that while global soybean stocks are buoyant per IGC, the global canola balance sheet is conversely tightening by comparison.

Domestically, the sale of Quebec oilseed crush facility TRT-ETGO to Viterra reshuffles the canola crush competitive landscape.  Overall capacity is unchanged, but we lost 1 player (TRT), and Viterra's share of total Canadian capacity has increased from roughly 7% to 12%.

Flaxseed -  The third largest market (after China and the EU) for Canadian flax is he U.S., and in the U.S. we also expect an increase in production to ~230k mt or better, due to increased acreage in the U.S. and depending on yields in North Dakota. Last years’ production was ~160k mt.  This is likely to affect the demand for Canadian flaxseed from the U.S.

Wheat – In a volatile but generally bad week for commodities, US wheat futures began the week down 10-15¢, and never recovered. Outside of the panic selling, program trading and margin calls which caused the early slump across the whole of the equity and commodity space, EU and Black Sea cash wheat markets continued to slide, Canada's harvested advanced in warm dry conditions, Aussie weather remained favourable, there was again no evidence that the market was uncovering additional demand for wheat even at these lower prices. 

Durum - Tunisia tendered for 159k mt of optional origin durum for Oct/Mch and bought 125k mt optional at $349.00/$361.00 per mt C&F.  That’s a good price. 

Barley –  The major concern for the world barley/minor feed grain markets is the extent to which China may revise its import policies in order to move their huge domestic corn stocks.

Oats - For the upcoming StatsCan stocks report, per Reuters, the average trade analyst guess for oat stocks is 700k mt (range 400k/1.3 myn), 125k mt below AAFC’s last at 575k mt, and roughly 32% below the 1.034 myn stocks in 14/15.

Peas – The CGC handling report is missing in action, so it is hard to verify producer deliveries for the week. Exporters maintain that deliveries on their pea production contracts have continued to be heavy (the CGC showed 271k mt of pea deliveries for week 2; more than for canola due to better harvest progress), and that there is considerable grower selling pressure to add to their sales during harvest.  

Lentils –  The strong demand during the opening of the season is helping to relieve the harvest pressure especially on red lentils. There is a good chance that red lentil prices will ease off during the fall months due to good Canadian supply in that slot, but green lentil supplies should stay tight. 

Canaryseed -  The StatsCan production forecast canaryseed production is at 133,800 mt, slightly above last years’ thanks to a 20% increase in acres. The StatsCan yield forecast was 922 lbs/acre while the SAF take on yields was at 768 lbs/ acre. If SAF is correct, this will tighten the supply-demand balance.

If you are interested in our new crop supply & demand numbers, please contact Mercantile.

Visit  http://mercantileventure.com or Contact mboersch@mercantileventure.com for more detailed intelligence and to enquire about weekly Mercantile private label Market Intelligence Reports. 

About the Author
Marlene Boersch

Marlene Boersch (MSc Ag.Econ.) & Anthony Paul Temple bring 70 years of experience and insight into the global world of agriculture to Mercantile. The strength of their company is derived from their practical expertise at senior levels in the grain industry within Canada and abroad. Their combined background provides the partners at Mercantile with a unique knowledge base, distinctively applicable expertise, and with exceptional connections to Canadian, U.S. and overseas customers.


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