Are US soybean futures now following the tune of Chinese peers?
One of the ideas sweeping soybean markets in the last session was that strength in Chicago futures was being fuelled by a positive performance by contracts on the Dalian exchange.
“There was some chatter that the Chinese soy market was stronger and that was the reason for some of the early strength” in Chicago, said Joe Lardy at US broker CHS Hedging.
And there might be some theory behind such an idea too, with Richard Feltes at Chicago-based RJ O’Brien flagging knock-on effects of the “expanding line-up” of ships waiting to load soybeans in Brazil, where farmers are holding back on sales thanks to the dent to local prices from a stronger real.
(A firmer real, which at R$3.5781 to $1 on Wednesday was trading at very nearly a six-month high, cuts the value in Brazil of goods traded internationally in dollars.)
With talk of Chinese buyers, the world’s top importers, in the market for supplies, the Brazilian squeeze could drive them to the US, which has plenty of the oilseed for sale.
‘No real pattern’
That said, the conclusion of Mr Lardy’s research was that “there is no real pattern to show that our futures react evenly with Dalian futures.
“When I ran a regression to analyse the correlation, it was statistically insignificant,” he said, attributing Tuesday’s rumour down merely to speculation.
“Without a strong fundamental reason for the rally” in Chicago soybean futures in the last session, “it was an easy reach to say, ‘Dalian beans were higher so we are too’.”
And certainly, the link broke pretty well on Thursday, when Dalian soybeans for September, the best-traded contract, settled up 1.0% at 3,512 yuan a tonne, but Chicago’s benchmark May contract was 0.3% lower at $9.08 a bushel as of 09:35 UK time (04.35 Chicago time).
‘Good grain movement’
While Chinese importers may be keen to buy the oilseed, US farmers are viewed as increasingly willing to sell, now Chicago futures have returned above the $9.00-a-bushel mark for the first time this year.
(The contract also in the last session closed above its 200-day moving average for the first time in eight months.)
Mr Lardy said, while noting that farmers had “not been very engaged” in marketing crop below $9.00 a bushel, said that “the past couple of days we’ve seen an increase in the amount of farmer selling especially old crop beans”.
Tuesday witnessed “good grain movement across the country, with soybean selling in the west [Corn Belt] especially heavy”, he said, flagging the incentive for farmers to raise cash, with spring sowings costs to pay for.
“A pop in the futures markets right when input payments are due is fortunate timing indeed.”
‘A selling opportunity’
Benson Quinn Commodities also highlighted that the US farmer had been in the last session “a seller of both old and new crop beans”.
Indeed, the market “is still a selling opportunity for the producer, with downside risk of technical correction in the offing any time now”.
The broker flagged, for instance, that soybean futures “are now overbought on both the daily and weekly charts.
“Fundamentals are still bearish with more-than-ample world supplies.”
Palm oil vs soyoil
And one non-US oilseed market, for Kuala Lumpur palm oil, which is definitely having an impact on Chicago values, turned lower too.
“Veg oils have offered a healthy degree of support to the [Chicago] soybean complex with palm rallying to settle at two-year highs” in the last session, Benson Quinn Commodities noted.
But on Wednesday, Kuala Lumpur crude palm oil for June was 0.7% lower at 2,694 ringgit a tonne, amid profit-taking encouraged by a stronger ringgit, which cuts the competitiveness of Malaysian exports.
Rival vegetable oil soyoil, one of the two main soybean processing products, in turn dropped 0.2% to 33.85 cents a pound in Chicago for May delivery.
Mr Feltes flagged nonetheless that worries remained over Malaysian palm oil output, thanks to El Nino-inspired dryness – fears that represented a key threat to an RJ O’Brien expectation that the rally in May soybean futures will before they reach $9.20 a bushel.
There is “potential for additional upside in palm oil where dry Malaysian conditions are expected to continue through April before normalising in May as the severity of El Nino recede”, he said.
Another crop being watched largely through the lens of weather concerns is, of course, US winter wheat, which has suffered dryness, followed by weekend frost expected to have caused some damage – although how much is open to contention.
“The market continues to debate just how much impact the weekend cold had on the US hard red winter wheat crop,” the type grown in the Plains, where the cold snap hit.
Benson Quinn Commodities said: “Current weather conditions and the prospects of damage to the crop due cold temperatures have resulted in enough concern to keep these markets from rolling over.”
And one trouble for investors is that it can take time for freeze damage to become apparent, with Mark Welch at Texas A&M University saying, for instance, that “it will become more observable over the next several weeks”.
‘Concerned with possible damage’
Kansas State University flagged that some western parts of Kansas, the top wheat producing state, for more than 12 hours on March 19-20 sat at temperatures below 24 degrees Fahrenheit (minus 4.4 Celsius) – the threshold for when cold can damage growing points in wheat plants in the jointing stage.
“While the temperatures this cold are not uncommon for this time of the year, the wheat crop is well advanced throughout the state this year due to a relatively warm winter,” the university said.
“Producers who have jointed wheat might be concerned with possible damage to their crop.”
(Wheat in dormancy may be able to survive temperatures as low as minus 10 Fahrenheit (minus 23 Celsius) unscathed, according to Texas A&M University.)
More cold ahead
Furthermore, there is more cold weather on the way, although with temperatures not seen as getting as low as last week.
“It doesn’t look like the coolest temperatures slated for this weekend, while not ideal, will be cold enough cause additional damage,” Benson Quinn Commodities said.
Still, there is “the potential for cold temperatures late next week, which will get some attention”.
Kansas City-traded hard red winter wheat kept a toe in positive territory, adding 0.1% to $4.77 a bushel for May, although Chicago soft red winter wheat futures for May eased by 0.1% to $4.66 ½ a bushel.
Key report looms
Corn, a follower of late, sided with its Chicago peers, easing 0.1% to $3.69 ¾ a bushel, and maintaining somewhat flat trading.
“The market has remained in holding pattern for the last fortnight or so,” said Tobin Gorey at Commonwealth Bank of Australia.
“Traders and investors are likely awaiting the results of the USDA prospective planting estimates due at the end of March,” a much-anticipated briefing.
Indeed, with the report having a history of causing price upsets, there is some idea that hedge funds may cut more of their large net short position in corn futures and options ahead of it – putting upward pressure on values ahead.
“I suspect the trade will attempt to further pare down short positions ahead on the March intentions report out Thursday next week,” Benson Quinn Commodities said.
(Source – http://www.agrimoney.com/marketreport/am-markets-soybeans-bow-under-weight-of-producer-selling–3556.html)