The heat in grain markets – in which corn futures are trading around 10-month highs, and soybeans at a 22-month top – is reaching such an extreme that investors may need a health and safety warning.
“The ag market situation is similar to a dry forest where even a small spark can trigger a raging fire,” said Richard Feltes at broker RJ O’Brien.
Still, Mr Feltes had a piece of advice to avoid getting burnt: “If you can’t be short soybeans, and we don’t think you can, you can’t be short the grains.”
Highest since 2014
That guidance was pretty much on the money in early deals, when the main Chicago contracts were trading flat to higher.
Soybean futures – capturing most market attention given their bravura performance of the past three months, during which prices have now climbed by one-third – extended the rally.
Having struggled a little to break above $11 a bushel, which it finally did in the last session, Chicago’s July contract has not looked back, and gained a further 1.1% to $11.56 ½ a bushel on Friday as of 09:55 UK time (03:55 Chicago time), earlier touching $11.61 ½ a bushel, a level not seen since August 2014.
As to why the oilseed is performing so strongly, Joe Lardy said that “you can choose from the following list to help explain the move: hot [US weather] forecasts, reduction to Argentine crops, La Nina, margin calls, risk reversals, China switching [import buying] from South America to the US, weaker dollar, funds”.
‘Near-term supply issues’
Or, as Tobin Gorey at Commonwealth Bank of Australia put it: “The market is clearly facing some near-term supply issues given the crop losses and long harvest delays in Argentina.
“That squeeze is pushing prices higher as buyers scramble to secure soybeans.”
The fact that we are talking short-term supply problems is particularly evident in the spread between the spot July soybean contract and the new crop November lot, which was trading a more modest 0.2% higher at $10.84 ¼ a bushel.
Earlier, the premium of the July contract to the November lot touched $0.75 ½ a bushel – up three-fold this week, having closed at $0.22 ¾ a bushel on Friday, and having actually traded at a small discount for 2016 up to mid-April.
A rich premium of a front contract indicates a supply squeeze, in encouraging buyers to delay demand wherever possible, while incentivising sellers to accelerate the marketing of crops.
‘Concerns about Argentine soybeans growing’
And there was no sign of an easing in the list of bull points for soybean futures with, for instance, data late on Thursday from the Buenos Aires grains exchange highlighting the continuing lag in the Argentine harvest, running, at 78.7% complete, 14.8 points behind last year’s pace.
While the exchange stuck by its harvest estimate of 56.0m tonnes, it did “not rule out” heavy rainfall in parts of Buenos Aires province causing fresh production and quality setbacks.
And more rains are expected – “light, but persistent”, the exchange said.
Benson Quinn Commodities said: “Concerns about the availability of Argentine soybeans are growing as a fair percentage of the crop is being harvested at higher moisture levels.
Moreover, there are “concerns that natural gas will not be available to dry down such production”, a worry which was “a new feature the last couple of days”.
Whatever, the setbacks are being reflected in export prices, with Mr Feltes, and others, noting a “firming South American basis levels”, which are “triggering ideas of stepped-up demand for old and new crop soybeans from the US” as importers switch origin.
More on the US export performance will be known later, with the release of weekly US export sales data, which could yet douse, or fan, the market flames.
Soybean export sales for the current season are expected to come in at 200,000-400,000 tonnes, with as further 400,000-600,000 tonnes booked for 2015-16 (which starts in September).
There has indeed been talk of Chinese buyers around in the US, and some official confirmations of sales made last week.
That said, Chinese officials look like they are attempting to quell the tide of imports by announcing an auction of 4m-5m tonnes, although this pales against import needs of approaching 90m tonnes a year, spurred of late by the soaring pig (and, to a lesser extent, chicken) production margins, as Agrimoney has reported.
‘Funds continue to buy
‘Meanwhile, there are some worries over a hot US summer too, stoked by the potential for a La Nina weather pattern.
“The market is still worried about dry summer conditions evolving in the US Midwest,” CBA’s Tobin Gorey said.
All this has captured the attention not just of buyers of soybeans – and of processing products soyoil and, in particular, soymeal – but of funds too, which have been returning to commodities, including ags, en masse, exploiting and stoking a price recovery.
“The funds continue to add to very large net long positions and both soybeans and soymeal,” Benson Quinn Commodities said.
In soybeans alone, they bought a massive 21,000 contracts in the last session, according to Reuters estimates, with a further 9,000 soymeal lots on top.
Soymeal itself extended its rally too, adding 2.0% to $426.50 a short ton to exceed last week’s high, and indeed set a fresh 20-month top for a spot contract.
Argentine is the top exporter of both soymeal and soyoil (prices of which stood 0.7% higher at 32.49 cents a pound in Chicago for July delivery, well below highs set in April).
The feed ingredient has performed particularly well given the relative dearth of alternatives, and other origins, with soyoil buyers able to turn to the likes of sunflower oil and palm oil for meeting many needs.
Palm oil itself was 0.4% higher at 2,653 ringgit a tonne in Kuala Lumpur, supported by the soy rally, and crossing back over its 50-day moving average on a continuous chart.
‘Just not performing’
Fund shifts are also seen as having been a big factor in the recovery inwheat futures in the last session, with bears tiring of trying to depress a Chicago market which is currently refusing to stay for long below $4.70 a bushel.
Investors’ short bets “are just not performing”, CBA’s Mr Gorey said, flagging that, on fundamentals, “weather issues are largely minor for wheat crops for now”.
That certainly looks true for Australia itself, where rains are reaching parts of Queensland and northern New South Wales missed by earlier systems.
‘Starting to become a problem’
But concerns are growing over the rain-beset French soft wheat crop, the European Union’s biggest, where the weekly rating from FranceAgrimer came in at 81%, still strong, but down 2 points week on week, and well below the 89% reading a year ago.
“Too much rain in France is starting to become a problem with the wheat quality,” said Terry Reilly at Futures International, adding that “southern Russia is also getting too much rain, but that is more of problem with spring corn plantings”.
Bigger drops were seen in FranceAgrimer ratings of French corn, down 5 points week on week at 79%, and winter barley, down 5 points at 78%.
Chicago wheat futures for July added 0.1% to $4.86 a bushel, creeping back nearer towards their 200-day moving average at $4.90 a bushel.
Kansas City hard wheat for July added 0.1% to $4.65 a bushel, swearing up for a battle against its 50-day moving average at $4.66 ½ a bushel.
Price moves later may be determined by weekly US export sales data, expected at, at best, 50,000 tonnes for 2015-16 (which actually ended in the US on Tuesday) and 300,000-500,000 tonnes for the new season.
Corn export sales, meanwhile, are expected at 800,000-1.1m tonnes for old crop, and 200,000-400,000 tonnes for 2016-17, which starts in September.
For now, Chicago’s July contract was siding with corn, in showing a small rise of 0.1% to $4.15 ½ a bushel, rather than joining soybeans in a more enthusiastic rally.
While there are the worries over a dry summer, and over a dearth of rain in parts of the eastern Corn Belt too, “near-term conditions though are generally favourable for [US corn] crops,” Mr Gorey said.
“More rain is forecast for next week for the Corn Belt,” which will help crops already in the ground, if potentially slowing the last plantings.
Still, oil markets provided some support for a grain used largely in making ethanol, with Brent crude nudging 0.2% higher to strengthen its foothold just above $50 a barrel.
In New York, cotton got off to a brighter start, adding 0.7% to 63.28 cents a pound, defying this time a drop in futures on China’s Zhengzhou exchange, which settled down 0.6% at 12,580 renminbi per tonne for September delivery.
In the US, “forecasters say rain will halt field work in some parts of the southern Plains until the end of the week,” Mr Gorey noted.
US export sales data later for cotton are “likely to be lower” week on week, said Louis Rose at the Rose Report.
“However, the shipment pace could remain strong,” he said, adding that the technical patterns for the spot contact are “bullish” too.
In the last session, the July contract “again settled above the majority of its most-referenced moving average periods,” Mr Rose said.
“Daily money flow remains bullish as July continues to trade within the middle portion of the 60-day regression channel.”
(Source – http://www.agrimoney.com/marketreport/am-markets-hot-ag-market-lifts-soybeans-to-22-month-high–3629.html)