AM Markets: China Helps Soy Futures Extend Winning Streak

(Agrimoney) – What is it with soybean futures? As Joe Lardy at CHS Hedging said, “the most asked question on Monday was easily ‘why are beans higher?’

“The overnight was firm but the day session saw the gains accelerate,” leaving Chicago’s January contract up approaching 3% at the close.

And while Chicago traders may have this idea of Turnaround Tuesday – that is, a strong market trend on the first day of the week reversing on the second – there was no sign of a reversal this time, at least, in early deals.

The January soybean contract added 0.5% to $10.25 ½ a bushel as of 09:50 UK time (03:50 Chicago time).

‘More limited seller’

As the reasons behind the strength, it helps that the US harvest is just about over, cutting pressure on prices from the ramp up in supplies that the season brings.

Technical factors are also offering some support.

Benson Quinn Commodities said that “last week’s charts were technically friendly with beans holding support at a $9.75-a-bushel Monday low and closing at high end of the week’s range.

Furthermore, the weekly report on investor positions highlighted, as Agrimoney.com reported, that “the speculative fund had liquidated a good chunk of their long position,” the broker said.

“I think was also supportive as the fund was now a more limited seller after reducing some risk exposure.”

China factor

But what has been really key is the strength in the soybean processing products, soyoil and soymeal, and in particular the latter, which shot up 3.0% itself in the last session, and added a further 0.9% to $324.90 a short ton on Tuesday, for January delivery.

This took the contract back above its 200-day moving average (just), and ahead too of its 100-day moving average, which it had not touched for nearly four months.

The upward surge in soymeal appears to stem from China, the biggest producer and user of the feed ingredient, with Benson Quinn Commodities flagging “strength in Chinese Dalian soymeal futures market”.

Dalian soymeal futures for January gained a further 2.4% to settle at 3,052 yuan a tonne on Monday, taking gains for the week to 4.2%.

‘Crush margins up’

And this gain in turn reflects support from ideas of strong demand from an expanding Chinese hog herd (which contains more than half the world’s hogs).

At Futures International, Terry Reilly said that “speculation hog herds are expanding in China,” besides continued bullish sentiment stemming from Thursday’s weekly US soymeal export sales data, was behind the rise in soymeal futures.

“China soybean crush margins, on our analysis, were up from the previous week, and if they hold around $0.65 a bushel, will be the highest level since mid-June,” besides double those a year before.

‘Big buying push’

CHS Hedging’s Joe Lardy, meanwhile, flagged a currency factor, which could at least explain in part strong US exports of soybeans themselves, of which China is the top buyer.

Flagging that China’s yuan has fallen to its lowest levels against thedollar in eight years, Mr Lardy said that “we could be seeing a big buying push coming from China as they fear a further weakening of the yuan and overall strength from the dollar”.

A weaker yuan would make imports to China of dollar-denominated goods such as soybeans that much more expensive.

In corn, Mexico, after all, appears to have made a good job of stocking up ahead of the collapse of the peso which followed the election of Donald Trump as US president.

In the latest week, Mexico’s orders of US corn slumped to 164,468 tonnes, from 709,261 tonnes the week before.

‘May jinx this rally’

Such a decline is not reflective of US exports of corn overall, with data on Monday showing US shipments last week as measured by cargo inspections at 875,980 tonnes, compared with 500,830 tonnes for the same week last year.

“Accumulated US corn export inspections are running 183% above last year’s pace,” Benson Quinn Commodities noted.

And there is the supportive factor to prices too of hedge funds having sold down particularly hard in corn futures and options in the latest week, implying selling pressure has already been spent.

Still, Benson Quinn Commodities also noted the prospect of the US Thanksgiving holiday this week.

“A holiday-shortened week and anticipated light trade may jinx this rally just as it’s getting started,” the broker said.

And, indeed, corn futures for December eased by 0.1% to $3.49 ¼ a bushel, albeit giving back only a small portion of gains in the last session.

‘Just what the agronomist would order’

Wheat was the worst performer of Chicago’s big three, backed, after all, by less impressive (although still better year on year) US export data than rival corn, at a time of year when, with harvests over, demand is taking a higher profile in market decisions.

“Accumulated wheat export inspections are 129% ahead of last year,” Benson Quinn Commodities noted.

More significantly, conditions may be improving for the dryness threatened US winter wheat crop.

There is some wetness in the forecast, and “where this ill‑defined event might be relevant is that it might contain snowfall,” said Tobin Gorey at Commonwealth Bank of Australia.

“Tucking a poorly-established wheat crop under an early blanket of protective snow might be just what the agronomist would order at this point.”

In fact, US Department of Agriculture data overnight showed the US winter wheat crop rated 58% “good” or “excellent”, down 1 point week on week, but well ahead of the 53% figure a year before.