AM Markets: Did Thanksgiving Come Early for Soybean Futures?

(Agrimoney) –  Did Thanksgiving come early for soybean futures? Typically, they manage headway on the eve of the US holiday (celebrated tomorrow), as well as the day after too.

“This is a tendency for beans to close higher on day before Thanksgiving, 68% odds, and day after, 66% odds,” Benson Quinn Commodities said.

But this time, Chicago’s benchmark January contract took the contrarian stance, standing lower in early deals, albeit not by that much, down 0.2% at $10.27 ¼ a bushel as of 10:15 UK time (04:15 Chicago time).

Prices too high?

That said, the easing followed a rally in the previous two sessions, and the contract was still up more than 3% for the week, earlier touching a fresh four-month high, in a rally attributed to strong demand for the oilseeds, besides the likes of support from Goldman Sachs for ag buying.

But there have been plenty of doubts voiced about whether the gains were warranted – at least, without signs of setback to South American sowings for the crop to be harvested early in 2017, the next cause of potential risk premium, with the record US harvest now in the bag.

“With ample US supplies and good South American weather, some traders are second guessing if soybeans should be this high” in price terms, said Terry Reilly at Futures International.

Spot futures are up some 18% year on year (in line a 19% rise in oil prices), yet “the only major difference between this year’s USDA soybean balance sheet to that of last year, is the US Department of Agriculture worked in very strong US demand projections early in the crop season” for 2016-17.

‘Long-term downside potential’

Sure, “we can also go on and on about other market factors driving soybeans higher, such as strong demand, inflation (fear) projections, higher outside commodity markets, etc” Mr Reilly said.

At Commonwealth Bank of Australia, Tobin Gorey also flagged chart support, noting that “beans pushing through technical resistance levels on Monday has encouraged some additional speculative buying”.

But at broker RJ O’Brien, Richard Feltes noted that, at a conference in London, “risk managers from the European Union and South America certainly recognised the long-term downside potential in soybean prices”.

Bearish talk was “driven by prospects for a record 2017 South American soy crop, a strong undertow from abundant global corn supplies, a 3m+ acre gain in 2017 US soybean area,” besides the “vulnerability” of US crop exports to trade disruptions caused by any review by future president Donald Trump of trade deals.

South America debate

Nonetheless, Mr Feltes also flagged a “reluctance” among investors “to short soybeans until the fate of the 2017 South American soy crop is more readily apparent”.

The general feeling is that South American prospects are good.

“Near-term weather forecasts for South America remain largely benign,” CBA’s Tobin Gorey said, adding that “confidence in South American supply for early next year will keep sellers on task”.

However, there are other analyses too, with Benson Quinn Commodities saying that, in Argentina, “if dryness becomes persistent, then some concern over production could develop,” although “right now it is too early for much concern”.

For Brazil, CHS Hedging flagged some downside to the open weather which has allowed rapid soybean sowings.

“The southern areas have been extremely dry. This is becoming a concern and could start to impact production if it lingers,” the broker said.

Divergent oils

Signally, soymeal, which has been a key driver of soybean prices of late, eased a touch, by 0.1% to $327.20 a short ton for January delivery.

In the vegetable oils complex, soyoil for January was lower too, by 0.4% to 34.62 cents a pound, although this defied a 0.6% gain to 2,946 ringgit a tonne in palm oil futures in Kuala Lumpur.

The gap in the price performance of the rival vegetable oils could be explained at least in part by currency moves, with the ringgit falling by 0.5% against the dollar, so boosting the value in ringgit terms of assets priced internationally in dollars.

‘Hard not to break’

Back in Chicago, the sagging in soybeans allowed grain futures to succumb to the more downbeat trends which appeared to be underlying recent sessions, but were masked by support from the oilseed.

“If soybeans decide to break, corn would find it hard… not to break as well,” said Benson Quinn Commodities.

After all, South American sowing conditions have been decent for the grain as well.

Some investors may also be exiting ahead of the possibility of volatility ahead, with Friday bringing the expiration of options, for December, often a process which causes unusual price moves in futures too.

This expiry “could be interesting with lighter volume expected from the Thanksgiving holiday”.

Wheat retreats

And wheat futures for March fell by 0.8% to $4.23 ¾ a bushel, falling back below their 40-day and 50-day moving averages, and shying away from a chance to break above their recent trading range.

“The cumulative impact of recent gains now means that prices are mostly near the upper end of recent ranges,” CBA’s Tobin Gorey said.

“That has happened rather quickly, but less because of the size of the gains, and more because the range is so narrow.”

‘Dogged by frequent rainfall’

In New York, cotton futures eased too, by 0.3% to 72.02 cents a pound, following a decline of 1.3% to 16,125 yuan a tonne in the January contract on China’s Zhengzhou exchange.

The declines came amid hopes of drier weather to speed up the delayed US harvest, although Chinese progress is less certain.

“Late-season harvesting in eastern China is still being dogged by frequent rainfall,” Mr Gorey said.

He added that “forecasters say that the western portions of Australian cotton country are now in need of some rain.

“However, the precipitation that does occur this week will largely be restricted to the east.”