Algeria bought 230-250,000t of durum for last half May/June shipment at a price that works back to about $15/bu delivered Saskatchewan. This confirms the volume transition to accessing cheaper new crop. Instances of localized $16.50/bu have worked to Morocco and small parcels to US/Canada domestic, Japan and South America. The volume focus is on new crop where Italy has been a buyer of 2 CWAD equivalent around $14.50/bu delivered Saskatchewan. 8 million North American seeded durum acres is ample for a supply rebuild if yield and quality normalize. In the meantime, if adversity happens, new crop should converge higher with old crop. If not, old crop should converge lower with new crop.
Small South American crop is a known-known, but the world is adjusting to the reality that it might need as much Canadian origin canola as logistically possible to accommodate new risks of what happens if (i) Ukraine 2.5 MMT winter planted canola crop faces input or harvest impairment, (ii) Ukraine cannot plant or logistically manage all or part of 7 mil hectares of spring sunflower plantings. Most of sunny area is in E ½ of Ukraine, in the war zone. Know that Ukraine exports about 6 MMT of sunoil per year and uses about 0.5 MMT for domestic. If 6 MMT was a canolaoil, at 42% oil would required 14 MMT of canola. At the margin, that is massive…and that right there is the reason why new crop canola is trending the way it is. Main short term risk would be an immediate truce to war or a world wide government effort to relax biofuel mandates. Unprecedented times requires unconventional thinking.
Canola price discovery has many moving parts, subsets whose individual detail will never become transparent. Therefore, must constantly mine for high-level clues. While the newsflow tends to focus on headlines such as South America weather, Matif rapeseed futures & soyoil futures, to me, the most important canola demand sign is to follow North American vegoil basis levels. Price doesn’t lie and provides a demand situational summary.
When needed, particularly when soyoil isn’t, canola crushers have been able to adjust canolaoil premiums to maintain good-enough positive crush margins. A price-times-volume trade-off occurs. Renewable Fuel and food lugs the highest propensity to pay whose importance with rises with small crop. Vegoil basis direction is a must know if want to make an informed decision. Charts have just been updated. Please contact me if would like more information.
With an early price rocket-ship north of $40/bu, Canada flax looks to have properly done, whose occurrence was soon enough, to choke offshore outflow that ensures outlets with highest propensity to pay (domestic) has enough supply. Island of high price.
The North American flax supply/demand would argue for 350,000t of core-must-have supply. That would leave about 150,000t for Europe, China and others. It is doubtful that offshore commitments exceed 50-100,000t creating a risk that sustenance of $45/bu chokes demand more than needed later year, particularly if Russian and Kazakhstan supply offers offshore buyers a cheaper choice. There is no evidence that Former Soviet Union pricing needs to soar higher to compete with Canadian levels. Domestic pet food interest has been strong. Cannot attribute it to a huge volume demand shift, rather timing associated with pent up trading demand. Flax has to stay high priced, but risk reward favors being sales overweight.
Normally at this calendar point, there is a lot going on in our pulse world. Not so much this year. Little is changing but neither are core expectations as described in recent research. Users got immediate fill late summer and have a handful of reasons to lay low. Logistics are fueling necessary rationing. Red lentils have other headwinds like uncertain India policy (stock limits and import tariff), and another import choice, which is Australia that everybody on this planet knows about. Domestic, including pet food, generally provides bulk of immediate interest.
Anticipated end demand result is this. Exporters, resellers, brokers and users have reasons to keep positions small. Trading demand is subdued, yet consumptive demand rolls along. Instead of more conventional sugar-rush all-or-none moments, anticipatory trading demand is contained. This instead means a shallower less volatile but elongated trading demand period, that may only convey spunk later winter. Every pulse has a different tweak and positional starting point. This has been researched. Drop me an email for more information.
We must prepare for higher for longer crude, diesel and gasoline price for two reasons. One is that demand (i) is shifting higher post Covid as world slowly returns to normal, (ii) substitution from higher priced coal, natural gas & electricity encroaches. Two is lack of supply growth prognosis as (i) world is still in hangover mode post two-year ago energy collapse with companies having chosen to focus on cost cutting instead of exploration, (ii) fear by would be investment suitors that government push into green trumps desire to shift resources in ways that would’ve been shifted during past energy bulls. Know that OPEC doesn’t have enough spare unused capacity to be the game changing crude oil fix, rather is incremental and viewed to be a random moment to justify a correction.
This looks to be a classic case of too high too long creating too low too long, that now is at risk of rolling too high too long. Same as the fertilizer discussion in that if supply is incapable of being the main source for short term fix, then recalibration requires demand changing behavior.
This has many trickle-down impacts to farming operations and even biodiesel. Research has been done on this. Please call or send an email for more detail or anything else you see in the analysis page.
We first need to define Canada production in a wide range of views. Then understand how much French wheat is of low Falling Number, how much can be obtained from droughty Kazakhstan and deep within obscure places like India. Then determine Australian & Mexican availability. Then go down path of substitution, like in Algeria, the more baguette versus couscous debate, or in Turkey that will use more soft wheat and export more product with a changed box label. All in the confines of trying to understand perception, emotion and timing of risk management, behavior that has little to do with a supply/demand. Keep in mind that the CWB is not around to make discretionary decisions, all of which combined means throw out the durum rule book. It is being re-written. It’s a radically different outcome when were talking about a volume problem year. If would like more detail, please send me an email.
India government just lowered the lentil import tariff by 10% and lower the Agriculture Infrastructure Development (CESS) by 10%. A net 20+2% import tariff reduction. Effective date looks to be July 27, with no mention of an expiry date either in writing or from parliamentary video feed. An expiry date would be preferred but means little right now because all know that amendments can occur at anytime. Given India stock limits and risk of policy amendments at a whims notice, trading demand is unlikely to carry same anticipatory behavior as before. Further, volume and fluidity is impaired because container logistics are a mess. Yet this policy announcement underscores a core fundamental piece to big picture view…..India is pulse deficit. Smaller to mediocre crop size in Canada should harmonize with India being a greater import threat to sustain upward price risk. Maybe a little sooner now in context of front loading trading demand.
It’s too early to know if the Hard Red Spring wheat story is only about volume, protein or both. Volume for sure as North American spring wheat beginning supply is poised to be the lowest since 12/13 (for now), but protein can come into play because US Hard Red Winter protein is weak. The last US spring wheat wreck was 2017 and it was a low HRS & HRW protein year. Stress ups odds for higher protein HRS outcome and can skew price discovery. Typically when in prime weather chaos, going with perception of crop size getting smaller or bigger is useful. But keep in mind that this isn’t the first high priced HRS rodeo that millers have been too, and that spring wheat is the only imbalanced world wheat class.
Research on this just completed. Please contact me for more detail.
Renewable Fuel is a game changer. You needn’t look any further than the recent four Canadian crush facility announcements that will add 5.5 MMT of crush capacity in 2024. Current vegoil price grid sports massive divergence between world and North America, with monster refining premiums also having much to say about valuation. Yet price discovery isn’t only about Renewable Fuel. We must be aware of and try to understand the value measuring differences and demand percentages involved for that segment of canola demand that can tap into the Renewable Fuel space versus that segment that basically extracts value offshore. This has been researched. Please contact me for more detail