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Published July 15, 2015, 09:28 AM

Duvenaud: Peas gave farmers a nice ride

Peas were one of the great success stories for Canadian prairie farmers in 2014.

WINNIPEG, Manitoba — Peas were one of the great success stories for Canadian prairie farmers in 2014. It was a smaller crop, exports got a shot in the arm from new Chinese buying and supplies are close to sold out at what were good prices all winter.

India has traditionally been the big buyer of Canadian yellow peas, along with Bangladesh and the U.S.

About a year ago, a Chinese food scientist figured out that peas could be reconstituted as food ingredients, one of which replaces high-gluten wheat for steamed sticky buns, which are a Chinese food staple. China found a cheap and reliable supply of peas in Canada. Canada will be down to about 100,000 metric tons of carryout, a 3 percent stocks to use ratio. That’s pretty tight.

Buyers are stepping back now. China, in particular, has stopped buying just about every commodity. China’s stock market has fallen 30 percent in the past month, which sounds terrible, except the retreat is only down to March levels. Even so, millions of Chinese climbed on to the bandwagon at the top of the market and they are facing horrendous losses. The Chinese government is doing what it can to support stock prices, but that’s a tricky proposition. One thing it did do is cut the availability of importers to access lines of credit. Without credit, buying is limited.

Contracts between farmers and processors are being canceled because of “speckles” on yellow peas. That sounds like the American corn that was refused unloading a year ago because of the presence of an unlicensed genetically modified variety. When you can’t cover your agreement to buy, any excuse will usually do.

Although most exporters have pulled in their horns, there is still business being done. You should be able to find $8.50 per bushel for yellows. That’s still a great price, well above the five- and 10-year average price for yellows.

Greens are difficult to sell. There are few bids, and those that are available are so far below yellows, it’s embarrassing. The only green bid we can find is $6.75 per bushel delivered. That’s with yellows trading at $9 per bushel delivered. The feed market isn’t the way out. Feed bids are about $5.50 to $6 per bushel freight-on-board farm.

Canola market stagnates

Canola futures have been consolidating near historical highs as the market discovers the fundamental structure for the upcoming crop year.

We are now estimating the canola crop at 12.6 million metric tons, compared with 15.6 million metric tons last year. The market is now at levels where export demand from China and the Middle East has evaporated, and without these customers, supplies will be sufficient to satisfy the domestic crush, along with regular Japanese and Mexican business.

Manitoba is expecting average yields, while recent rains in Alberta and parts of Saskatchewan have improved production prospects. Further upside in canola will depend on further yield deterioration. In past years of dry weather, there is a tendency for the market to exaggerate yield losses and come under pressure at harvest. World vegetable oil prices have been sluggish, and have not moved in line with the recent rally in canola and soybeans. This is tempering overall canola demand.

In weather markets, it can be difficult to project market direction, and extreme swings can occur. We want to remind you that we are 100 percent sold on the 2014 crop. Canola futures have rallied $90 from the spring lows, and we think the market has factored in the lower production estimates for the time being. Soybean fundamentals are still rather heavy for old and new crop, given the year-over-year increase in seeded acreage.

Milling wheat

Western Canada has received timely rains, and the U.S. spring wheat crop is in excellent shape. The U.S. winter wheat harvest is 55 percent complete, and we expect further selling pressure from U.S. farmers. Russian, Ukraine and European winter wheat harvests are also progressing under favorable conditions.

Recent weather has tightened the fundamental structure for new crop, but there is no real change to the nearby stocks situation, which is actually growing as harvest progresses for the major exporters.

In the next month, we will have a better idea of the Northern Hemisphere wheat and corn production. At this time, the market has incorporated a risk premium with the uncertainty in yields. Unless we see significant deterioration in the Russian and Canadian spring wheat crops, it will be difficult to justify another surge to the upside. The corn market has potential to trade higher if adverse conditions continue, but it is hard to kill a crop with too much rain at this stage. The next major rally for wheat is expected in late September, after Northern Hemisphere harvests are completed.

Duvenaud publishes the Wild Oats Grain Market Advisory. For a free copy, call 800-567-5671 in Western Canada and North Dakota. All others call 204-942-1459.