Market Insider

Stagnant Games

Grain markets headed closer to Plant 2017 with more focus on any little headline to trade off of with no major changes to production or demand at this time. The next major announcement will be on Friday, March 31, 2017 when the United States Department of Agriculture (USDA) will announce their 2017 acreage estimates and stocks as of March 1. MetLife Ag Finance thinks that United States (U.S.) farmers will only plant 87 million acres of soybeans this spring, below the USDA’s current estimate of 88 million and Allendale’s forecast of 88.8 million acres. MetLife may be on to something as with the National Oceanic and Atmospheric Administration’s (NOAA) recent spring forecasting calling for dry conditions in the second quarter of 2017, corn planters may continue to roll instead of switching over into beans. Needless to say, since there are not a lot of other headlines to trade off of, the needle has not really moved week-over-week.

More specifically, on www.pdqinfo.ca Western Canadian grain prices dipped for the most part this week, led by canola, which saw futures values drop by about 20 cents CAD /bushel on front month contracts and a dime for new crop values, whereas basis remained relatively unchanged. As such, cash canola prices in most areas dipped back below $11/bushel this week. For wheat, hard red spring values across the Canadian Prairies continues to trade sideways to lower with a drop in both the basis and the futures totaling about a nickel per bushel, keeping things above $6, but still below $7 on the top end. Pulse crop values have seemingly bottomed-up with lentil bids starting to re-appear amidst India’s crop getting harvested and government policy impacting trade. Conversely, yellow pea prices across Western Canada have remained resilient, providing options from $7.00-$7.50/bushel for new crop bids (area-dependent).

 

In India though, pulse crop prices have fallen significantly, down 30 per cent in the past six months. After President Modi called for farmers to plant more oilseeds and pulses, supported by hiking guaranteed state prices, Indian producers answered the call with pulse crop production this year likely to climb above 22 million tonnes (+35 per cent year-over-year). On the oilseeds front, output should top 34 million tonnes (+33 per cent year-over-year, and like pulses, oilseed prices are also down a third in the last six months. This essentially means, that the second most populated country in the world likely will not need to import as many vegetable oils, compounding bearish price headwinds thanks to expected increased production of palm oil in Southeast Asia (not to mention a record global soybean harvest).

It is helpful that China is forecasted to import 89 million tonnes of soybeans in 2017/18 (up three million from 2016/17), but between lower demand in India and higher palm oil production in Southeast Asia, bearish fundamentals are winning the battle.  The USDA’s attaché in Indonesia is expecting palm oil production in the country to hit a record 36.5 million tonnes in 2017/18 thanks to a strong recovery from dry El Nino conditions, but exports are expected to be stagnant around 25.5 million tonnes. The reason for the stagnant export growth is competitive with other vegetable oils, namely soyoil where it is only $15 USD/MT less than soyoil at the Rotterdam port. Accordingly, with import demand generally stagnant, the vegetable oil trade game is easily stuck in a bit of a rut unless a weather/planting scare flares up.

To growth,

Brennan Turner
President & CEO | FarmLead.com