Major grains & oilseeds markets - The market was in a bit of a holding pattern this past week as traders tried to measure the consequence of various weather factors. The news flow saw reports of frost in the northern US, too much rain in the western US, dry conditions in the FSU, suggestions of problems in China, and more confirmations that El Nino is going to be a real event this summer. - It is tough to know whether any real weather damage has been done so far, but it did bring the market's attention back to the fact that weather is a pertinent concern for the next few weeks and can have significant consequences before the crops are in the bin. There were also a number of comments circulating suggesting that the WASDE May yield estimates for 2015/16 were optimistic.
Spec funds were reported to have added to their short positions in corn and beans while reducing their wheat short. It is a holiday long weekend in the US and in parts of Europe, so, dependent upon weather conditions, we could have a bumpy opening to futures on Tuesday. There were few reports of cash business during the week; Algeria was traded over the weekend but we will not have details until Tuesday.
Soybeans - The market has weakened as the corn/ bean ratio has continued to realign itself. The old crop ratio needs to be $2.50 while we consider the new crop is where it should be. We see the low on July futures at $8.75.
Canola - Old crop canola now has little to do with soybeans as we are about sold out; new crop is roughly in line with soybean product value. - In fact new crop canola is at a narrow discount, which is caused by the Chinese demand for canola oil due to poor quality in China. Crush margins in China are more profitable currently than in Canada.
Flaxseed - AAFC put this years' ending stocks at 100k mt, but 2015/'16 ending stocks are expected to be ~25% higher than this years'. As mentioned before, while demand is almost keeping up with increasing supply, we will likely see some increase in carryout this coming year.
Wheat - The wheat outlook is all about weather. Press reports continue to tell us Russian crops look excellent while our own Russian contacts continue to advise us that the crops are not doing well. Producers are fully aware of what can happen in June and July and are not eager sellers at the low prices while funds are big future shorts. With a long weekend looming in the US, additional futures volatility is likely, and depending on the weather maps, Tuesday's opening could be violent.
Durum - In their monthly balance sheet estimates AAFC meanwhile made an upward bookkeeping adjustment revision of 100k mt to 13/14 durum ending stocks. They increased 14/15 exports by 100k mt to 5.0 myn mt. They expect 15/16 carryout to remain static y/y at 1.0 myn mt - which is still roughly 800k mt below 13/14 and in line with our long held view that durum carry stocks would remain tight.
Barley - AAFC revised 14/15 barley carryout upward to 1 myn mt versus 650k mt previously (assumes lower feed demand), and carried it forward into 15/16 carry by moving it upward from 500k mt to 950k. While a "looser" balance sheet, carryout is still fairly tight in comparison to 13/14 at 1.95 myn mt for example. However, their export assumptions look rather optimistic in our view. 15/16 malt barley bids in Saskatchewan finished this past week at roughly $4.70/$4.85 per bu, and Manitoba at $4.50/$4.70.
Oats - The AAFC report cut 14/15 carryover to 625k mt versus 725k previously (increased feed demand and exports). 15/16 carryout increases to 1.0 myn mt versus 875k mt previously. The bottom line is that the Canadian balance sheet loosened; hopefully the area estimate is revised lower (returns are poor since the last StatsCan survey estimate) or the fundamentals have weakened if not.
Peas - Pea seeding in Saskatchewan is virtually done and the same for Alberta, with the exception of the Peace area, where about 30% of peas remain to be seeded. Precipitation for Saskatchewan varied across the province, ranging from zero to 49 mm. Cool dry weather has delayed germination and crop development in many areas. Frost was reported in many areas, but frost damage to peas seems limited. We are concerned about reports of dryness in southwest and south central Saskatchewan and in Alberta. This clearly needs watching.
Lentils - We are literally running out of current crop lentils and prices are reflecting this. Decent quality lentils fetch well in excess of $40/cwt for decent quality product. The tightness in old crop lentils is also spilling over into new crop prices, with prices well over the $30/cwt mark; and up to $36/cwt for large greens. This is partly fuelled by concern about dryness in western SK and AB, and due to mounting concerns about the effect of El Nino in Australia and India. New crop contratcs at $36/cwt for large greens with an AoG are certainly tempting; this clearly is a winning price with limited risk.
Transportation - Canadian railroads only supplied enough railcars to load 38% of the stocks in primary elevators - which is keeping "basis" levels wide. We do not think the AAFC export estimate published May 20 are achievable.
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