Soybean futures rediscovered at least one forward gear, although the modest headway failed to brighten the market mood for grains too.
While equity investors have been pondering whether the Dow Jones industrial average stock index will rise to hit 20,000 for the first time ever, soybean investors have been pondering whether spot futures in the oilseed will fall to $10.00 a bushel for the first time in a month.
“January soybeans are starting to get close to the key psychological level of $10 a bushel,” said Joe Lardy at CHS Hedging.
“We haven’t seen the $10 mark in a month, since November 21.”
Still, the contract shied away, in early deals on Wednesday, from a confrontation with the psychologically-important mark, adding 0.1% to $10.06 ¼ a bushel as of 09:30 UK time (03:30 Chicago time).
The contract gained some support from firmness in the vegetable oil markets, in turn encouraged by some headway in the energy markets, where Brent crude added 0.9% to $55.85 a barrel.
Vegetable oils are linked to mineral oil through their use as the raw material for biodiesel, and palm oil gained 3,115 ringgit a tonne in Kuala Lumpur.
Soyoil, meanwhile, added 0.3% to 36.16 cents a pound in Chicago.
‘More rains needed’
Furthermore, there was some hope for oilseed bulls in the weather forecast for Argentina, where a turn wetter has eased concerns over dryness damage to crops.
While benign conditions are expected over the next few days, “another ridge of high pressure is advertised over Argentina late next week,” said Terry Reilly at broker Futures International.
“That, if it verifies, may induce warmer and dry-biased conditions.”
And even now, while recent rains have helped, “more widespread coverage will be needed going forward to completely recharge the soil moisture”, said Michael Cordonnier, the respected analyst.
‘Run of profit-taking?’
However, the early gains in soybeans hardly looked invulnerable, and there was always the possibility of course that they represented nothing but a “dead cat bounce”, and some profit-taking by investors on short positions, ahead of the looming Christmas holidays.
“I would have to lean toward lower prices, but wouldn’t rule out a run of profit-taking after this week’s sharp correction,” said Benson Quinn Commodities.
Besides, from a fundamental perspective, harvest is imminent in Brazil, a process which could bring pressure on values as supplies ramp up.
And from a chart view, the January contract remained below its 50-day and 200-day moving averages, which it lost during its plunge of the last session.
Also considering technical factors, the options market may prevent soybean futures for January rising too far above $10.00 a bushel too, with expiry suggesting a gravitational pull towards that level.
“January options expire on Friday and there is very large open interest in the $10 puts,” said CHS’s Joe Lardy.
‘Large open interest strike’
Options expiry has been suggested as a potential depressant in corn too, with Futures International’s Terry Reilly flagging $3.40 a bushel as a price point to watch.
“Chicago corn could be headed towards the large open interest strike at $3.40 a bushel if we see a technical break at $3.50 ½ a bushel,” Mr Reilly said.
“January options expire on Friday, and the $3.40 put has 22,769 positions open as of Tuesday morning.”
In fact, the March contract did break below $3.50 ½ a bushel – key as it is the level of the 100-day moving average – with the lot easing 0.1% to $3.50 a bushel.
Corn vs soybeans
Still, all is not lost for bulls, with Benson Quinn Commodities noting that the “continued battle between a record corn crop and huge demand will remain in effect far into 2017.
“Ethanol margins should remain well into the black for the remainder of 2016 and I expect another strong week of demand” this week, in data released later.
But what corn’s retreat did do was prevent the grain asserting itself in terms of closing further its gap to soybeans in terms of the key 2017 December and November contracts respectively, so improving hopes for sowings next year.
The November soybeans: December corn spread stood at 2.61:1, down from 2.68:1 at the start of the month, but still well into territory incentivising growers to plant the oilseed rather than the grain.
Cheap Argentine supplies
Corn was also little helped by further selling in rival grain wheat, which eased by 0.3% to $4.02 a bushel in Chicago for March delivery, taking its premium over corn back towards $0.50 a bushel.
Results announced late on Tuesday of the latest Egyptian tender were not reassuring in terms of showing Argentine wheat $13 a tonne or more cheaper even that Russian supplies, allowing the South American country to win business despite the extra freight costs of shipping across the Atlantic.
“As last year in the same period, South American origins are back to the Mediterranean basin,” said Paris-based Agritel.
Black Sea chill
That said, the wheat market is not without its fundamental concerns, over cold weather potentially causing winterkill to autumn-sown crops in the US and now in the Black Sea too.
“Temperatures are now below zero degree in Black Sea area and the weak snow cover in some parts of the region is drawing traders’ attention,” Agritel said, noting temperatures as low as “-15 degrees Celsius in the eastern part of Ukraine and oblasts of Kharkov and Poltava.
“This weather must be closely monitored especially if in the absence of snow falls,” which protect crops from cold.
However, helpful for farmers has been the gradual decline in temperatures, meaning that crop damage “could be limited”, Agritel added.
(Source – http://www.agrimoney.com/marketreport/am-markets-soy-holds-as-argentine-pressure-turns-on-wheat–3892.html)