Major grains & oilseeds markets – Traders focused upon weather events over the past week, decided there were areas of concern, and consequently reduced their short positions. Weather events covered diverse conditions (including frost, too hot, too wet, too dry), ranging between the US, Canada, Russia, India, and the EU.
There is a WASDE report due Wednesday (June 10); it will be interesting to see what the USDA does regarding wheat production. In our view, their last estimates were overly optimistic for Australia, Canada, and India, to name but a few.
The frost in Canada and North/South Dakota were the main talking points concerning Canada last week (the jet stream continues to be south - which could allow more frost events). The jury is out on how much damage was done and also regarding much area can be re-seeded (if seed is available).
The markets closed a little weaker on Friday following a week of good gains that stemmed primarily from adverse weather concerns. We do not expect much action this coming week until after the release of the WASDE report.
Soybeans - We do not expect any significant changes in the WASDE report that will affect the bearish soybean outlook; in fact, it is likely they add some additional production in South America. The market will need the support of price movement in other grains to turn soybeans bullish.
Canola - Producers delivered 330,000 tonnes in week 43, while exports were 221,000 tonnes, and domestic usage was 164,000 tonnes. Visible stocks are 1.1 myn tonnes.
Elevators and crushers were big buyers of the July/Dec spread to lessen their exposure to July. The problem is that there are not too many sellers of the November with frost around - which has narrowed the spread July/Nov.
Canadian frost reports were termed "severe" in Manitoba/North Dakota and South Dakota, which in turn pushed Canadian canola to 1-year highs. New crop canola remains attractively priced for the Chinese compared to soybeans in particular as the Chinese need human consumption oil and meal demand is slow at this time as they rebuild their livestock following disease problems.
Flaxseed - Per Saskatchewan Agriculture, the flaxseed conditions have been mixed. So far, they rated flaxseed crop conditions as 3% excellent, 56% good, 30% fair, and 11% poor to very poor. In other words so far, we still have 59% in good to excellent condition, while 41% rate fair to very poor.
Wheat – In our view, the last WASDE estimates were overly optimistic for Australia, Canada, and India, to name but a few. - We did not hear any confirmed trade over the past week, while the market awaits details of the Iraq tender and an Ethiopian tender that was called for this coming Thursday covering 400,000 tonnes of optional origin wheat. There were few offers of cheap Russian wheat beyond July. It remains unclear what the Russians will do on export taxes after July 31.
Durum - North African crops look widely-varied; Morocco forecast their grain crop 60% higher on the year, Tunisian output is expected to come in 40% lower at just 1.4 myn mt, while 2015 Algerian output is expected to come in equal to 2014 at 3.4 myn mt and below the 4.9 myn mt output in 2013. USDA put Algeria’s 15/16 wheat import requirements at 7.4 myn mt versus 7.1 myn in 14/15.
Barley – Despite the Commission raising the EU barley crop 1-myn tonnes to 59.5 myn this week, and now just 750,000 tonnes below last year, EU barley was very firm. Jul-Aug French big boats prices increased $5-10 per tonnes to $195-200, sparked by Chinese shorts and dryness/heat concerns for malting barley, while German Fob rallied to $190-195.
Oats - A combination of burgeoning dryness and the frosts in Western Canada and the Dakotas has supported oat price of late. This has served to improve the charts and new crop now looks to be in neutral/slight buy territory; given the propensity of oats to flash false upside breakouts over the past several years, a jaundiced eye is probably required here.
Peas – Peas and pulses in general have weathered the frost challenges much better than canola, which has been affected by far the most. However, conditions are far from ideal. We worry especially about the lack of moisture in the western areas. New crop values will be following weather developments especially in Canada, Australia and in India.
Lentils – Much the same as the pea market. Prices were little changed, as export movement is slowing due to very tight supplies. With the very small ending stocks this year, there will be a lot of pressure to ship new crop lentils as early as possible, but we see the timing advantage of early seeding fade away due to the cool conditions lately. To date, only 56% of lentil acres are rated good to excellent.
Transportation – AAFC export numbers remain overstated even when allowing for container and truck shipments. We would need railroads to ship 1.5 myn tonnes per week over the remaining 9 weeks of the crop year, which is not going to happen.
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