AM Markets: Soybean, Vegoil Futures Take Turn Under Pressure

(Agrimoney) – Fund watching in ags is sometimes a bit like a playground game. As soon as they are spotted, funds seem to have a habit of freezing. As in the last session, when just as all eyes had focused on the twin boost to grain prices of short-covering and (unconfirmed, but suspected) cash inflows, the support stopped, sending prices sharply lower.

“Wheat does the Icarus,” ie the mythological figure that burned then crashed, was how Tobin Gorey at Commonwealth Bank of Australia described the session.

‘Concern about production’

On Tuesday, it was the turn of parts (but not all) of the oilseed sector to raise questions of whether it had been flying a bit close to the sun.

Kuala Lumpur palm oil futures for January – which in the last session touched 2,828 ringgit a tonne, the highest for a benchmark contract since March 2014, and indeed have been a flagship for the oilseeds rally – turned tail and shed 1.8% to 2,772 ringgit a tonne as of 09:45 UK time (03:45 Chicago time).

Worries remain over Malaysian palm oil production, with trees still suffering a hangover from El Nino-inspired drought a few months ago

“There is concern about palm oil production in Malaysia coupled with hopes of increasing demand into China that is fuelling the rally,” said Joe Lardy at broker CHS Hedging.

That said, the market may need proof of output decline, potentially from official Malaysian Palm Oil Board data early next month, to continue the rally, besides ideas of decent export demand.

Latest statistics from both cargo surveyors SGS and ITS showed Malaysian exports running 10.9% lower in the first 25 days of October than in the same period of last month.

Prices dip

With palm oil lower, Chicago-traded soyoil dropped too, by 0.6% to 35.77 cents a pound for December delivery.

And that undermined soybeans themselves, which dropped by 0.4% to $9.88 a bushel for November delivery, and by 0.4% to $9.98 ¼ a bushel for January.

US Department of Agriculture data overnight on US crop progress offered little help, in showing the US harvest bang in line with the five-year average, at 76% complete as of Sunday.

‘Turnaround Tuesday’

And the weather outlook for South America – where farmers are planting soybean crops, and so which could be a potential source of risk premium – was not so helpful either.

“Forecasters say South America will receive regular rounds of showers over the next fortnight to keep soils favourable for planting and establishment,” said CBA’s Tobin Gorey.

In fact, Terry Reilly said that price volatility is “considered low for this time of year for traders looking for an eventual South American weather play later this year”.

Meanwhile, Benson Quinn Commodities flagged negative technical signals, saying that soybeans are “well overbought and due for technical correction so look for ‘turnaround Tuesday’ selling to develop overnight and Tuesday”.

Turnaround Tuesday, ish

Turnaround Tuesday is the idea among (mainly Chicago) grain traders that strong price trends on the first day of the week are reversed a bit in the second session.

But, while working for soybeans and soyoil, the adage had lost its edge when it came to grain markets.

Corn futures for December were higher, but only by 0.25 cents a bushel at $3.48 ½ a bushel, still 4 cents down for the week.

Again, the USDA crop progress data were not much help, showing the US harvest 61% complete, only 1 point behind the five-year average despite some wet Midwest weather.

‘Russia should be preferred’

Meanwhile, wheat futures for December stood 0.3% lower at $4.01 ½ a bushel, adding to their 2.4% slump of the last session, which cost the contract in chart appeal too, with the lot falling through a series of moving averages, including its 20-day, 40-day and 50-day.

This despite the launch overnight by Egypt’s Gasc grain authority of its latest wheat tender, the results of which are expected later.

It was a lowball offer of US wheat at a Gasc tender two weeks ago which gave wheat futures their October spurt, with the gains being supercharged by covering by funds of a net short position which hit a record high earlier this month.

Still, as Agritel noted, this time “Russian origins should be preferred despite of the price rise registered last week in the Black Sea area, mainly explained by logistical matters”, as crops compete for port space.

‘Covered enough shorts’

And as for the short-covering, Benson Quinn Commodities underlined the negative factors stemming from latest data on hedge fund positioning showing that much short closing had already been done.

“Corn and wheat took Friday’s Commitment of Traders information and determined that the funds had covered enough of their short position,” the broker said.

For soybeans, however, “what we have come to learn from the funds is that they will at times build a net long position that is too big” in the oilseed.

“However, they have proven to be reluctant sellers of their entire net long position.”

Cotton revives

In fact, it was New York that witnessed something more akin to a Turnaround Tuesday, in a slight recovery in cotton futures for December, after a modest decline in the last session (the fifth successive negative close).

The December lot was 0.2% higher at 68.93 cents a pound.

And this despite the USDA report overnight showing a 1 point improvement, to 48%, in the proportion of US cotton rated in “good” or “excellent” condition.

The harvest, meanwhile, at 39% complete was 2 points ahead of the average pace, despite the hurricane damage to the eastern US cotton belt.

Furthermore, there was a chart negative, as CBA’s Tobin Gorey noted, with the December contract in the last session ending “the day sitting below its 100 day moving average – a weak omen from the technical tea leaves”.