(Agrimoney) – The hedge funds which have been hiking short positions in soybeans, while maintaining a long position in soybeans, were sat pretty on Tuesday.
For a short while, after the release of Farm Service Agency data showing a hole in US corn and soybean estimates, it looked as though futures in both crops were poised for a strong day.
“But the more the industry was able to dig into the numbers, the weaker the rally became,” said Darrell Holaday at Kansas-based broker Country Futures.
“The problem” with the data was that while the FSA data, drawn from insurance filing, implied plantings well below US Department of Agriculture estimates, there was no offsetting rise in claims from farmers barred by bad weather from sowing crops.
“We are not seeing a big increase in the reported prevented planted acreage,” Mr Holaday said.
He attributed the low planting figures to underreporting by growers, a reflection of insurance deadlines, rather than the area not actually being seeded.
‘Worst on record’
That left futures more open to some of the other talk in the market which, for soybeans, was frankly pretty ugly.
A Reuters report raised a cloud over Chinese soybean buy-ins, saying that they could tumble by as much as 25% in 2014-15, thanks to weak processing margins in the country, the top importer of the oilseed.
“The first half of the [calendar] year was the worst on record for the industry,” an official at a grain trader said, with Shanghai JC Intelligence estimating that Chinese processors in Shandong, the hub of China’s soybean industry, are losing nearly 400 yuan ($65) a tonne crushing imported soybeans.
Industry data on Tuesday showed crushers operating at just 44.5% capacity last week, albeit up 1.1 points week on week.
‘Critical to the market’
Currently, the USDA is forecasting a 2m-tonne rise to 30m tonnes in Chinese imports of US soybeans, although orders so far are down 10% year on year.
“This will be critical to the soybean market and much more important than small US acreage adjustments,” Mr Holaday said.
Still, there was at least some respite for bulls with long-awaited news that a Chinese trade delegation had signed for a big purchase of US soybeans, of 4.8m tonnes, in a process which is considered something of a formality, but nonetheless providing a boost to confidence.
November soybeans fell 0.9% to $9.80 ¾ a bushel in Chicago, facing too pressure from strong US crop condition data overnight.
Corn supports
If that handed profits to hedge fund shorts on soybeans, they saw gains on long positions in corn, which overcame a morning wobble to end 0.2% higher at $3.43 ¾ a bushel for December.
For the grain, the news from China was more positive, with talk of its regulators discussing a change in in inspection requirements for imports of US corn byproducts, such as distillers’ grains, which have fallen foul over the fuss over tainting with Syngenta’s MIR 162 trait, which has been cleared in Washington but not Beijing.
Furthermore, in good news for ethanol consumption, Thomas Vilsack, the US agriculture secretary, said that he was “reasonably sure” that renewable fuel targets for this year would be raised.
He also stressed a commitment to get ethanol production to 15bn gallons a year.
Paris vs Chicago
Wheat, however, saw no such gains, indeed falling 0.9% to $4.96 ¼ a bushel in Chicago for December delivery – continuing, indeed, to cut its premium over corn, to $1.52 ½ a bushel.
That is down more than 18% in six sessions, at a time when the spread might be expected to work the other way, with corn prices potentially depressed by the approach of harvest, a process from which wheat is largely free.
However, data overnight confirmed a decent start to US winter wheat sowings, in some areas at least, and a better pace in spring wheat harvesting.
Furthermore, French victory at a tender by Egypt’s Gasc grain authority underlined that US wheat is out of the market.
In Paris, wheat futures for November managed a 0.3% gain to E162.00 a tonne on the result, despite a strengthening euro reducing the competitiveness of eurozone exports.
Sterling rose even more, by 0.3% against the dollar. Nonetheless, London feed wheat gained 0.5% to £112.60 a tonne, rising for the first session in six.
Robusta vs arabica
Amongst soft commodities, the coffee complex saw mixed fortunes too, with New York arabica futures rising 1.7% to 185.25 cents a pound for December delivery, far outpacing a 0.4% increase to $1,985 a tonne in London’s November robusta contract.
But that was in accord with revisions by Conab, the official Brazilian crop bureau, to its estimate for domestic production.
Although Conab raised by 570,000 bags to 45.14m bags its estimate for the country’s coffee harvest, the world’s biggest, the upgrade was all down to robusta, with the arabica estimate actually seeing a small downgrade.
And the bureau noted reasons to expect strong robusta fortunes next year too, when arabica production prospects appear compromised.
‘Sugar dump’
But there was no respite for New York raw sugar futures, which dropped 0.9% to 13.55 cents a pound for October, a fresh four-year closing low for the spot contract, and a 10th successive negative session.
Short term, “the overriding story” in the market is the impending expiry of the October futures, which is expected to prompt a “sugar dump”, in terms of delivery against the contract, Sucden Financial said.
“It seems the market isn’t quite sure who/where is going to take the sugars, some rumoured to be of very poor quality, and until this becomes less opaque… we will continue the recent trend,” the broker added.
“In conclusion, despite the dreadful price action it still seems dangerous to try and pick the bottom [for prices] at the moment.”
Longer-term, Abares was hardly too positive on prices either.
