AM Markets: Palm Oil Hits 2-Year Top, Helping Soy Higher Too

November 8th, 2016

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Category: Grains, Oilseeds

palm oil 450x299(Agrimoney) – OK, many markets suffered a fresh bout of nerves on Tuesday, with the result of the US presidential election just hours away.

Shares opened little changed in Europe, with London’s FTSE 100 up just 0.1%, after nondescript closes in Asia too.

And the dollar, which in the last session was buoyed by the raised chance of Hillary Clinton beating Donald Trump to the White House, eased back a touch against a basket of currencies.

But the jitters did not spread to the oilseeds market, and in particular Kuala Lumpur palm oil futures, which for January soared 2.0% to 2,845 ringgit a tonne as of 09:40 UK time (03:40 Chicago time).

Earlier, the contract touched 2,863 ringgit a tonne, the highest for a benchmark lot since March 2014.

Low high?

The rise in palm oil reflects ideas that Malaysia’s palm oil production fell by 3.7% last month, as numbers from the Malaysian Palm Oil Association show.

Typically output in the second-ranked palm producing country, after Indonesia, hits its peak in October.

Septembers can bring the seasonal high.

But if the 1.72m tonnes recorded in production this year is the top, it was not a very high one, down 12.5% year on year, reflecting a hangover from dryness blamed on the latest El Nino weather pattern.

The Malaysian Palm Oil Board will on Thursday unveil official data on Malaysian palm oil supply and demand for last month.

Jumping beans

The jump in palm oil helped rival vegetable oil soyoil soar 1.9% to 35.72 cents a pound in Chicago for January delivery, jumping back above its 10-day and 20-day moving averages.

And that in turn was a prop for soybeans themselves, which stood 1.1% higher at $10.09 a bushel for January.

This despite Chinese trade data showing a drop of 5.8%, year on year, to 5.21m tonnes in the country’s world-leading soybean imports last month.

That was below the figure of 5.4m tonnes that the market had expected.

‘Huge exports’

Still, for US exporters, demand for soybeans is not an issue, with data on Monday showing 132,000 tonnes of the oilseed ordered by China, besides 135,000 tonnes bought by the Philippines.

Data on actual US soybean exports last week, as measured by cargo inspections, “were huge for soybeans at 2.6m tonnes” said Joe Lardy at CHS Hedging.

“This is the third best inspection number of the year and the fourth week in a row of inspections over 2.5m tonnes,” he said, adding that “the inspection pace this year is well ahead of last year and well ahead of the five-year average”.

‘Hinges on Chinese demand’

One should add here a bit of small print that a Donald Trump victory in the elections is seen as potentially threatening to US crop exports, given his apparently unorthodox foreign policy.

“The health of the US soybean balance sheet hinges on Chinese demand,” said Tobin Gorey at Commonwealth Bank of Australia.

“An election result that poses a threat to US China trade relations could prove bearish for prices.”

And there is hope of South America, where soybeans are being seeded, coming in with decent crops, early in 2017, to provide a secure alternative origin to the US for soybean supplies.

“Forecasts for the week ahead have rains favoured into drier north east Brazil while wetter southern Brazil gets welcome respite,” said Benson Quinn Commodities.

Wasde ahead

While Argentina has suffered flooding “said to impact 600,000 hectares” of crops overall, “only a few beans have been planted”, the broker said.

That said, US Department of Agriculture staff overnight pegged the Argentina soybean crop for 2016-17 at 55.0m tonnes, less than the USDA’s official forecast of 57.0m tonnes, based on ideas that the country’s decision to delay a cut to a soy export tax will deter sowings.

The report comes ahead of the USDA’s much-watched monthly Wasde crop report, on Wednesday, which will also give more insight into the extent to which strong demand for US soybeans is balancing off increasing production expectations.

The estimate for the US yield is expected to be upgraded to an even higher record top.

‘Demand remains very strong’

Among grains, US export data has been strong for corn too, with cargo inspection volumes for last week coming in at a healthy 889,609 tonnes, taking the total for 2016-17 to 10.1m tonnes – nearly twice the 5.55m tonnes as had been shipped as of the same period of last season.

“Demand remains very strong with limited slowdown in sight,” said Benson Quinn Commodities.

That said, domestically, “ethanol margins have been under pressure with weaker energy prices”, the broker said.

And looking to the Wasde a reduction in the USDA’s estimate for US feed demand for corn in 2016-17 “is possible with less cattle on feed from prior reports”.

Still, corn futures for December rose by 0.5% to $3.48 a bushel, recovering losses of the last session and rising back above their 100-day moving average – if remaining in the narrow channel that have trod in the run-up to the Wasde.

Egyptian tender

Corn’s rise allowed wheat to gain too, with both grains particularly strongly linked this year given the large amount of low-quality supplies in the record world wheat harvest, fit only for livestock feed.

(That said, Ukraine’s harvest was on Tuesday pegged at 55% of milling grade by UkrAgroConsult, up from 50% last year.)

Demand for wheat will come into particular focus later with the latest results from the latest tender by Egypt’s Gasc grain authority, coming only days after the floating and devaluation of the Egyptian pound, which will make imports that much more expensive.

“It is expected that wheat from the Black Sea area will be the main participants,” said CHS Hedging, and indeed win the tender too, being competitive even after a further rise in prices.

Russian wheat prices have risen for seven consecutive weeks, according to data from Ikar, with 12.5% protein supplies selling at $179 a tonne for export, up $1 week on week.

Wheat condition

If that offered a little bit of encouragement to US values, overnight data from the USDA on the condition of the US winter wheat crop did not.

The crop was rated at 58% in “good” or “excellent” health, unchanged on the week and up 7 points year on year, undermining ideas that dryness in parts of the US Plains is having much of an impact on establishment.

“Weekend rains through the southern plains offered some benefits in west Texas and portions of Oklahoma,” said Benson Quinn Commodities.

While “moisture would be a benefit” for western Kansas, “I have doubts that this crop is in dire straits at this point”.

 

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