(Agrimoney) – Shanghai shares lost a further 5.9% on Wednesday (although narrowly avoided their first close below their 200-day moving average in nearly a year) to take their losses over the last month above 30%.
And this despite further measures by officials to steady the market, with the People’s Bank of China saying it was helping the state-owned fund China Securities Finance Corp access liquidity, and help it “hold the line against the outbreak of systemic or regional financial risk”.
That was taken as meaning that the fund is being given central bank cash to step up share buying and attempt to stop the rout.
‘Bearish news flow’
For commodity markets, the idea of anything that might slow the Chinese economy is bad news, given that the country is a huge buyer of raw materials, including many ags.
The CRB commodities index is down 4.1% in two sessions.
And this at a time when there are for ags some other negative Chinese dynamics going on too.
Richard Feltes at RJ O’Brien flagged a “bearish Chinese news flow” including “burdensome corn reserves, shrinking hog numbers, faltering equity market” and ideas of forward buying of South American soybeans rather than US ones.
Certainly, forward export orders for US soybeans overall for 2015-16 (which starts in September) have been surprisingly weak.
‘Speculation of hedge funds going bust’
At Futures International, Terry Reilly said that “traders are concerned about Chinese feed and vegetable oil demand amid a slowing GDP and volatile equity markets”.
But there is more to the China worries than the fundamentals, with Mr Reilly also flagging “speculation of Chinese hedge funds going bust”.
“This rumour could be applied to the significant drop in soybeans,” in the last session, he said, adding that “traders should watch closely for any potential soybean cancellations by Chinese crushers”.
On China’s Dalian exchange, soybeans for January, the best-traded contract, settled 2.9% down at 3,943 yuan a tonne, having earlier set a contract low of 3,898 yuan a tonne.
Yield downgrade?
Still, there are some US supply concerns for investors to factor in for soybeans too, with wet weather deemed likely to prevent farmers come sowing some 1.6m acres of the oilseed, compared with a US Department of Agriculture estimate last week, besides flooding out some of what was seeded.
Meanwhile, the USDA is expected to lower its yield expectation for the crop too on Friday, in the monthly Wasde crop supply and demand report, by 0.9 bushels per acre to 45.1 bushels per acre, according to a Bloomberg poll of analysts.
US inventories will end 2015-16 at 380m bushels, rather than the 475m bushels the USDA is currently pegging in.
And, with some note too of US Census bureau data showing better-than-expected US soybean exports of 44m bushels in May, and the oilseed fare relatively well, in falling a modest 0.3% to $9.88 ¾ a bushel for August delivery, as of 09:40 UK time (03:40 Chicago time).
The better-traded new crop November lot was 0.5% down at $9.80 ¾ a bushel.
Palm down
Elsewhere in the oilseeds complex, palm oil, of which China is a large buyer, actually fared far worse, dropping 2.6% to 2,151 ringgit a tonne for September delivery.
Earlier, the contract touched 2,132 ringgit a tonne, the lowest for a benchmark contract in six weeks, and down nearly 10% on a high set a month ago.
The rise comes despite expectations that official data later this week may show a drop in Malaysian palm inventories, with production seen dropping by 1.5-2% month on month in June.
Exports, meanwhile, rose 9.4% to 1.70m tonnes, according to data from cargo surveyor SGS.
‘News momentum lost’
Back in Chicago, it was actually wheat which saw particular selling in early deals, falling 1.5% to $5.76 ½ a bushel for September delivery, with ideas of crop threats from wetness in the US Midwest and dryness in the likes of Canada and the European Union past their peak, for now at least.
“Weather concerns remain but given there are no additions the ‘news momentum’ has been lost and prices already having a hefty premium,” said Tobin Gorey at Commonwealth Bank of Australia.
There has been plenty of mention of the idea that a “bull market needs feeding every day” to keep prices afloat.
Not that the weather outlook is great.
“Weather forecasters are now looking for a little relief on Canada’s Prairies over the next week or so, but the need for rain will quickly return,” Mr Gorey said.
“Forecasters expect Western Europe and the US Pacific Northwest to remain dry and hot.”
‘At a virtual halt’
Where there was some bullish news was on the demand side, with Egypt’s Gasc grain authority announcing a further wheat tender.
OK, Russia is favourite to scoop business, but there is growing comment over the country’s export tax, which in essence takes half the value on wheat above 11,000 roubles a tonne, in a market which is dollar denominated, adding a currency uncertainty to trade.
Futures International’s Terry Reilly flagged “uncertainty over nearby Russian wheat export commitments.
“The new Russian export tax is taking its toll on Russian wheat commitments as importers are reluctant to book wheat with prices nearing the $200-a-tonne threshold.”
CHS Hedging said that “Russian wheat exports are at a virtual halt as the government and traders try to figure out their wheat export tax.
“No-one is clear on how or when the tax is figured.”
‘Plenty of corn in the world’
Meanwhile, corn eased 0.7% to $4.20 ½ a bushel for September delivery, and by 0.7% to $4.30 a bushel for December, weighed by wheat, but feeling some support too from the prospect of a downgrade in Friday’s Wasde to its USDA’s estimate for the domestic corn yield.
Analysts foresee a cut in the forecast to 165.2 bushels per acre, from 166.8 bushels per acre.
The corn market also has US ethanol production data later to negotiate, amid some ideas of errors in the previous two reports, including the one which pegged output at a record high.
CHS flagged a downdraft from South America, where Safras raised its 2015 Brazilian corn production estimate by 3.2m tonnes to 85.6m tonnes.
“There’s plenty of corn in the world and we’re uncompetitive with South America,” the broker said.
Cotton drops
In New York, cotton got off to a poor start too, falling by 1.2% to 65.19 cents a pound for December delivery, and heading into traffic in terms of a clutch of moving averages.
It surrendered the 50-day and 75-day lines in early deals.
China, the top cotton importing country, is adding an extra worry to this market with the start on Friday of its sales from state reserves.
The Zhengzhou January cotton contract ended down 2.8% at 12,775 yuan a tonne, having earlier set a contract low of 12,610 yuan a tonne.
