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Alex Norton: Time to think new crops, production potential

CRESTWOOD, Ky. -- After months of markets being driven by factors on the demand side of the balance sheet, the breaking of spring weather a few weeks earlier than usual in the U.S. and Canada allows market participants to start thinking about new...

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CRESTWOOD, Ky. - After months of markets being driven by factors on the demand side of the balance sheet, the breaking of spring weather a few weeks earlier than usual in the U.S. and Canada allows market participants to start thinking about new-crop prospects and production potential.
Moisture has been a concern for lentil growers, U.S. hard red winter wheat areas had excellent weather (but dryness is on the horizon), and the fading El Nino is having an impact on palm oil production in Asia Pacific.
This early in the year, it is easy for the market to get carried away, speculating about the potential size of crops based on weather forecasts and expectations. Yields are seldom made for any crop in March. Instead, it is best to look ahead to planted area as the first real predictor of potential crop size.
Wheat
Wheat markets have firmed modestly.
In the U.S., hard winter wheat areas are the only portion of the country not expecting greater-than-normal precipitation. Given the lower prices, compared with previous years, sellers are looking for any bullish spark to set off a rally. So even though global supplies are still comfortable and moisture reserves in the U.S. are adequate, the market took this news as a reason to rally. Major upside was limited, however.
The U.S. Department of Agriculture issued updated supply and demand estimates March 9. While the U.S. balance sheet did not change, global stocks decreased 3.3 million metric tons. A 2.4 million-metric-ton production decrease from India and an additional 1.5 million off Australia resulted in tighter global supplies.
Durum
Durum prices continue to fall under pressure. There has not been a lot of activity in the global market, with few sales from European and U.S. sources, but trade has been light. There were no changes in USDA’s monthly Supply and Demand estimates for the U.S. durum balance sheet.
Canola
Canola prices have been flat, as the market continues to look for direction. A variety of market factors have to be considered, and traders do not know what to do.
China’s move to cut back on canola imports had the expected impact of lowering prices, but this is old news. The prospect of the U.S. bringing in canola given the higher price of soybean oil compared with other fats not only lowered soybean oil prices, but gave hope for Canadian sellers.
Current offers show a sizeable discount for canola, but trade has been light. This has kept the market mostly flat, as supply is available but little trade is taking place. European rapeseed was firmer last week, which may limit any further downside for canola.
Palm oil prices have been firming, and current expectations are for a 2 million-metric-ton reduction in overall
production in 2016.
El Nino dryness has been an issue in recent months, and will continue to have an impact into the summer. As the top-produced oil in the world, one has to consider overall oil price direction when discussing canola markets, therefore the strength in Malaysia is a support to canola.
Peas and lentils
Pea prices firmed, as the USDA food aid program issued a tender for 15,200 metric tons of split yellow peas.
Additionally, India’s demand for exports is expected to rebuild as existing inventories are being used up. Export activity has been slowing from Canada, but look for some business to return with India’s demand.
Lentil markets have steadied after having seen strength of late. Large green lentils have kept a premium to red and other classes of lentils, as grower deliveries are behind short-term needs.
Bulk movement from the U.S. and Canada has slowed, prompting ideas the market is overdone to the upside. Moisture in Canada headed into planting season is still a concern, but updated weather models have alleviated some of those fears.

Related Topics: WHEATMARKETS
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