The following analysis was provided by Marlene Boersch of Mercantile Consulting Venture.
The following is a fundamental analysis of today's pulse, special crops, grain and oilseed markets. Mercantile is a professional services company specializing in private-label market intelligence, risk management solutions, and project consulting.
Each week, the Mercantile Market Commentary provides independent analysis and recommendations based on the international and domestic market developments for farmers and others whose daily business is agriculture. For more details and to subscribe to the weekly newsletter, visit www.mercantileventure.com.
Pulse & Special Crops Market Outlook - Fundamentals
Lentils
Green lentil values continue to strengthen, while red lentils are holding their own despite the big Australian red lentil crop that is just being harvested. Green lentils have found extra support by continued buying by India, which is driven by the looming pigeon pea shortage in India. This has brought green lentil values to within 88% of their all-time high (fall 2016), while red lentils are at ~65% of their all-time high due to the new crop competition by Australian red lentils. However, we estimate global lentil production (majors) to be down by ~11%, which leads us to believe that red lentil values should be supported further later this crop year, because (-in absence of pea imports-) lentils now represent the cheapest available pulse in India. So red lentils should have some upside left, while greens are getting close to their highs. (Small greens are within 2% of their all-time high value (fall 2016) and should be sold.)
Peas
Yellow pea values have remained mostly even, though at a significant discount to green peas. September pea export volumes at 440k mt (466k mt last year) have been quite good and surprisingly, were heavily weighted towards China (366k mt, 83% of total Sept. exports). However, if the weekly CGC numbers for October are correct, this will fall off to around 250k mt for October ’23 (329k mt in Oct.’22). Given the sharply increased potential competition by Russia, the ongoing demand patterns for Cdn. yellow peas will have to be watched very closely, especially into Asia (China, Pakistan, Bangladesh). Should Cdn. volumes start to drop off significantly from previous export patterns, this will affect yellow pea values. Contrary to what we see in lentil production, global pea production and supply is up by about 5% this year, led by a big 32% increase (+ 1 mln mt) in Russian peas, so peas are not likely going to be as tight as lentils. While we do not expect yellow pea prices to weaken significantly over the next while, the record volume of peas Russia has produced this year leaves yellow peas vulnerable in the markets. At the same time, we see no reason for green pea prices to weaken for now.
Grain & Oilseed Market Outlook - Fundamentals
Canada Western Red Spring Wheat
Global wheat production is slightly lower than last year, but big supplies in Russia have allowed Russia to dominate the export market. China is showing itself to be a strong importer of wheat so far this year, but currency issues in other major importing countries are restricting demand. Meanwhile, quality issues in China and parts Europe, along with smaller production in Canada and Australia have decreased the volume of milling quality wheat. While non-durum wheat supply in Canada is down 5% from last year, strong demand for milling wheat has Canadian non-durum wheat exports 8% ahead of last YTD. Eventually, smaller Canadian wheat supplies will begin to restrict exports which we expect will finish the season down by 9% from last year
Durum Wheat
Drought in Canada, North Africa and parts of the EU impacted durum production negatively this year. However, an unusually big crop in Turkey that was quickly and aggressively marketed into Italy when quality problems arose, affected the markets in August. Turkish exports unexpectedly satisfied in excess of 1 mln mt worth of demand. This impacted Canadian sales into that important destination and has pushed the demand for Canadian durum later into the winter.
Oats
Smaller seeded area and poor yields caused Canadian oat production to fall by over 45% from last year. Large volumes of carry-over stocks have softened the impact of the drop in production, so the total supply of 3.8 mln mt is over 25% smaller than last year. Meanwhile, big carry-in stocks allowed exports to show a strong start to the season. Aug-Sep exports are currently 67% ahead of last YTD. Tight supplies will eventually lead to a slowdown exports, and good movement to Mexico and South America will help tighten the Canadian oat balance sheet even further. Early movement has satisfied the current needs of North American oat mills, but we expect they will be looking to extend coverage in Dec-Jan.
Canola
The canola market is underpriced compared to current soybean futures. But crush margins in Canada remain very profitable, so that crushers (preferring to keep canola for crush) are not aggressive in export markets. However, we will need to see a big increase in weekly exports if we are to achieve our export forecast. Prorating YTD exports only adds to 6.13 mln mt for the year, which would fall short our expectation by a big 1.9 mln mt. If weekly exports do not improve, we will need to reduce the export number, weakening overall usage. YTD crush numbers prorate to 10.53 mln mt, 530k mt higher than expected, but this still would not be enough to compensate for a small export program, which would leave ending stocks higher than expected by many.
Flaxseed
N American flaxseed production is down by 39% from last year due to lower acres and lower yield this year, and down 41% from the 5-year average N American production. But when adding in the carry-in stocks, supplies are reduced by a much smaller 11% (-79k mt from last year). So, while the N American S & D for flaxseed has clearly tightened, given the carry-in, it is not short supplies. China could be a change agent on the export side, but they are currently getting cheaper flaxseed from Russia and Kazakhstan. This makes it a risky move to rely on Chinese buying to tighten the S & D further and drive prices significantly higher.
Mercantile develops domestic and international market intelligence to maximize our clients' benefit.
Established in 2003 by Anthony Temple and Marlene Boersch in Winnipeg, Canada. Our insights are based on more than 75 years of expertise and insight in the global agricultural market.
The strength of the company is derived from our practical expertise at senior levels in the grain industry both in Canada and abroad. Our experience is rooted in global marketing of grains, pulses and oilseeds, and in investment of processing assets in numerous geographies, providing us at Mercantile with a unique knowledge base, distinctly applicable expertise, and exceptional connections to Canadian, U.S. and overseas customers.
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