AM markets: soy revives rally. Corn prices hit 10-month high

June 6th, 2016

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Category: Grains, Oilseeds

SoybeanCorn450x299Low50(AgriMoney) – So was the last session’s retreat in the soy complex just down to pre-weekend profit-taking, or was there something more structural and sinister involved, suggesting the rally is over?

The answer was that the setback was just a temporary blip – at least, so early trading suggested, when soybeans spurted back up to $11.54 ¾ a bushel, before easing back to $11.48 ¼ a bushel as of 09:00 UK time (03:00 Chicago time).

That was still a respectable 1.4% up on the day, a hefty move for early trading hours, and more than recouped the last session’s losses.

‘Strong buying interest’

The move upward reflected fresh concerns over South American supplies, which are seen driving demand from importers to the US, so warranting higher Chicago values.

“Solid US export sales are lending support to ideas that, as South American basis firms, importers are switching over to more US soybeans,” said Tobin Gorey at Commonwealth Bank of Australia.

Paris-based Agritel said: “The beginning of the week has confirmed strong buying interest, as new rains are expected in Argentina,” where the rain-delayed harvest is already running well behind the typical pace, delaying the release of crop to the market.

The rains are also seen as having damaged prospects for harvest volumes, and quality, in the South American country, the top exporter of soymeal and soyoil.

Soymeal revived its rally too, adding 1.3% to $419.70 a short ton for July delivery, more than recovering its losses of the last session, while July soyoil gained 1.0% to 32.59 cents a pound.

Record prices

In Brazil, meanwhile, prices have strengthened too, in part thanks to decreased ideas of the country’s own crop – Informa on Friday cuts its estimate by 1.6m tonnes to 98.5m tonnes – but also thanks to slow farmer selling, with growers holding out for yet higher prices.

This is a particular issue in Brazil, where a weakened real last has spelled higher local values.

“Old crop soybean prices at the Port of Paranagua are hitting record levels,” in Brazilian real terms, said Michael Cordonnier at Soybean and Corn Advisor.

“Soybean prices are expected to hit a record high price of R$100 per sack, approximately $13.00 per bushel, sometime soon.”

He highlighted that “Brazilian farmers have also been slow to sell their remaining stocks of old crop soybeans – in mid-May there was still 30% of the Brazilian soybean crop that had not been sold”.

‘Little chart damage done’

Global supply and demand matters for soybeans, and other grains, will come into particular focus at the end of the week, with the release of the US Department of Agriculture’s monthly Wasde crop report.

Still, there are technical factors too to take into account, and, for instance, the weekly data on hedge fund positions which showed speculators had not added much to their high net long in soybean futures and options as of Tuesday last week.

The position grew by some 6,500 lots to 208,696 lots – remaining below the record levels which tend to ring alarm bells in the market that a position has become too “crowded”, and is vulnerable to a reversal, with a consequent dent to prices.

Meanwhile, Benson Quinn Commodities said of the last session’s price decline that “there was little chart damage done considering how overbought these markets are”.

Brazil downgrade

Hedge funds were more enthusiastic about corn, lifting their net long in futures and options by a sizeable 66,000 contracts.

Even so, the net long, at 130,798 lots, was – while at a 10-month high – well below historical highs.

Certainly it was no barrier to an early-week rise in prices, with July corn futures up 0.7% at $4.21 ¼ a bushel in Chicago, and earlier hitting $4.22 a bushel – the highest for a spot contract since July last year.

South American production concerns remain an issue for corn too, although more in Brazil, where the safrinha harvest is disappointing, that in Argentina.

Informa on Friday cut by 2.1m tonnes to 78.9m tonnes its forecast for Brazilian corn output in 2015-16.

Wetness, rather than dryness, as now become the focus, with MDA saying that “additional rains in south central areas will maintain wetness concerns for safrinha corn”.

Funds covering shorts?

As for wheat, the question was whether it would be able to rebuild on solid gains of the last session, and retake the $5-a-bushel mark in Chicago.

The July contract did so briefly, hitting $5.02 a bushel, before retreating to $4.98 ¼ a bushel, which still represented a gain of 0.2% on the day, and kept the lot firmly above its 200-day moving average, at $4.90 a bushel, which it broke back through in the last session, in a positive technical signal.

“Chicago contracts from July through December all broke through 200‑day averages – a widely followed momentum indicator ‑ on Friday,” CBA’s Tobin Gorey noted.

And that at a time when hedge funds remain well net short in Chicago futures and options, by more than 90,000 lots as of last week.

“We suspect investors are buying those positions back now that wheat prices have lost their downward momentum,” Mr Gorey said.

“Indeed perhaps the momentum is the other way,” he added, noting the buy signal represented by the break above the 200-day moving average.

European concerns

On the supply and demand front, weather is improving for the rain-beset US southern Plains hard red winter wheat crop.

“Drier weather across central and south eastern Plains crop areas will ease wetness and disease threats,” MDA said.

Still, worries are lingering about the damage done to crops in France, and elsewhere in Europe, from inundations.

“Concerns remain about the conditions of the crops after the recent rains,” Paris-based Agritel said, flagging fears “both about yields and qualitative aspects.

“Beyond France, this situation looks pretty similar for the whole European continent, including Ukraine and Russia.”

Dollar, oil

On the macroeconomic front, eyes will also remain on the dollar, after its slump in the last session on employment data seen as cutting the prospect of an imminent rise in US interest rates.

A weaker dollar boosts the competitiveness of dollar-denominated exports, such as many crops, although the greenback was little changed in early deals.

On energy markets, Brent crude nudged 1.3% higher to $50.26 a barrel – regaining its foothold above $50 a barrel, and improving a little price prospects for crops used in making biofuels.

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