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Published February 03, 2014, 10:22 AM

Pea demand not strong, future contracts offer possible relief

WINNIPEG, Manitoba — The pea market, like every market, is operating on activity that is mostly far in the future. Very few processors even have a bid for yellows, although greens move easier.

By: John Duvenaud, Agweek

WINNIPEG, Manitoba — The pea market, like every market, is operating on activity that is mostly far in the future. Very few processors even have a bid for yellows, although greens move easier.

“Can’t get cars” is the story from multiple sources. Some processors are only selling to their customers for July delivery, on the assumption that will be the earliest they’ll be able to move peas.

The international market for yellow peas is decent — not strong. India is getting close to its winter crop harvest, which is the smaller of their two crops, and it looks like another above-average crop.

Chinese markets will be closed this week for their new year holiday.

The green market is adjusting to the big slug of exports that occurred immediately after harvest. Everybody’s green pea storage was empty last July and August. There was considerable pent-up demand. Greens moved in volume right off the combine and most of those would have arrived at destination in November and December. This year the green market stands deathly quiet as global buyers figure out their new equilibrium. Presumably the green business will pick up again as this is high consumption season in Europe. Processors are far more likely to have room for greens. You can probably get $8 to $11 per bushel for old-crop greens with delivery unlikely before March and more likely in April.

Yellows are a tough sell. Several buyers took their bids down to $5.60 per bushel before pulling them entirely. Again, there is a reluctance to buy more when the processors don’t know when they’ll be able to move them.

Charts suggest greens could move to yellow levels. Yellows traded at a premium to greens in 2011, which was abnormal, but at that time, greens had adequate supplies while there was a flurry of yellow imports from India. Yellows above greens is not the norm but it can happen. Now, with yellows not only considerably cheaper but difficult to move, and with more than adequate green seed available, expect a big jump in the proportion of greens that will be planted this spring.

New-crop greens can be contracted at $7.50 to $8 and as high as $8.50 without an act of God clause. New-crop yellows are $5.25 with an act of God or as high as $5.75 without one.

Weak soybeans weigh on canola

The soybean market has turned a corner with the focus changing from “tight U.S. situation” to “record South American production.” Sales of U.S. beans are being switched to South American origin as supplies become available. On the recent soybean rally, the beans did not make a new high, which put technical traders on the defensive. We will see additional South American selling on the oilseed complex in the next few weeks.

The downward trend in canola has been tempered by strength in the bean complex, but the reins are loosening as canola tests contract lows. There is no improvement in the Canadian system with commercial offers off the West Coast surfacing for July and August, but from February through June, fresh export sales are not expected to materialize.

The weekly Canadian canola crush finished the week ending Jan. 22 at 130,000 metric tons, which is 75 percent capacity. Product movement is tempering the canola crush pace. Most crushers have their nearby demand covered.

There is no signal that the downward trend in canola has come to an end. Producers who have followed our advice are in good shape selling 80 percent of the 2013 crop, and we are waiting to monitor upcoming seeding conditions in the Northern Hemisphere before selling the final 20 percent.

At this time, expect a year-over-year increase in Canadian canola and U.S. soybean acres. The chances of having record yields of 40 bushels per acre in Western Canada two years in a row are low, however. We are projecting 2014 canola production at 15.6 million metric tons, compared with 18 million in 2013.

Milling wheat still under pressure

World wheat values remain under pressure for three reasons. Canadian nondurum spring wheat production was 27.2 million metric tons, up from 18.8 million in 2012, which will keep the system running near full capacity for the remainder of the crop year. Second, U.S. wheat ending stocks were increased on the recent U.S. Department of Agriculture report because of lower feed demand.

Finally, world wheat ending stocks are near 185 million metric tons, the highest in three years, which shows the world has plenty of supplies to work through. There is no solid reason to see this wheat market rally and the burdensome supply of U.S and world corn continues to lower the price floor for wheat.

The only bright spot in the wheat market is high protein Candian Western red spring above 13.5 percent. Basis levels are very strong in export positions but with limited movement on the prairies, producers will have to wait until summer to capture the stronger basis.

Editor's note: Duvenaud is the publisher of the Wild Oats Grain Market Advisory. For a sample issue, either call 1-800-567-5671, e-mail admin@canadagrain.com or visit canadagrain.com.

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