(Agrimoney) – Chicago grain traders say that the second session of the week reverses a strong trend on the third.
But it was a weak iteration of the Turnaround Tuesday theme which greeted them this time, with the best that could be said for corn and wheat futures that they at least managed to slow their declines, compared with Monday’s.
Soybeans did manage to stage some rebound, standing up 0.4% at $10.37 ½ a bushel in Chicago for January delivery as of 09:10 UK time (03:10 Chicago time).
‘Elevated domestic basis’
As ever, it had one eye on the performance of soymeal, which for December added 0.9% to $378.40 a short ton, this time rebuilding a little of its premium over the January contract, up 0.8% at $365.40 a short ton – a somewhat bullish sign, in implying more of a scramble for near-term supplies.
Analysts, often keen to try to pop the balloon of any inflated ag commodity price, have actually been rather reluctant to foresee a return of soymeal futures to earth, given the support to values from strong US demand and logistical hiccups, neither of which look like easing off soon, especially amid colder weather.
“Soymeal continues to draw support from elevated domestic basis and a record US export sales book,” Richard Feltes at Chicago-based RJ O’Brien said.
Prices on the Dalian exchange in China, the top soybean importing country, were not so helpful, with soymeal for May settling down 0.5% at 2,859 yuan a tonne.
‘Rapid pace’
Still, soybeans also gained support from continued talk over strong US exports, of which the latest evidence came on Monday with a figure showing exports of 2.78m tonnes last week.
That took the total shipped so far in 2014-15 to 19.41m tonnes, up from 16.00m tonnes a year ago (for 2013-14).
“The US has been booking soybean exports at a rapid pace,” said Tobin Gorey at Commonwealth Bank of Australia.
One broker said that US soybean exports, as measured by cargo inspections, are now “about 41.5% of the total export demand estimate” as reported in the US Department of Agriculture’s latest Wasde report, which details forecasts for a range of ag commodity supply and demand numbers, domestic and international.
“This compares to last year’s pace of 40.5%.
“Last year the final export number ended up being 197 million bushels above the November 2013 Wasde estimate,” the broker said, attributing it in part to the fact that “China’s buy programme did not turn off until May”.
Chinese retreat ahead?
Indeed, soybean futures might have been faring better were it not for concerns that Chinese purchasing could end sooner this year, once supplies become available again in earnest in the spring from the South American harvest.
“Observers are now guessing what proportion of the bookings will be realised given a large amount are in a window when South American producers will have plenty of beans available,” CBA’s Tobin Gorey said.
The US broker flagged the impact last year of “shadow banking”, a process in which commodities were used by borrowers as a financing tool, and one which may be so prevalent this time.
“From what we have heard the Chinese government has been cracking down on shadow banking and the grains are no longer plagued by these transactions,” the broker said.
Separately, Benson Quinn Commodities noted that the boost to sentiment from Friday’s cut to Chinese interest rates, on ideas that this would support demand, had given way “to concern that China stimulus is not enough to offset bad debt on bank balance sheets”.
Argentine stand-off to end?
Another unusual factor which has been supporting soybean prices could break too, in the hold-off from selling by Argentine farmers using crops as a dollar-denominated hedge against a falling peso and strong domestic inflation.
“They stored a record 62% of their total soybean use from last year and are projected to store 70%+ this year,” the broker said.
“This story, however can only go on for so long when we are talking about perishable commodities.
“The normal distribution from Argentina will eventually resume and potentially flood the market with enough beans to significantly affect price action.”
Declining condition
Nonetheless, soybeans were faring better than wheat, which dropped 0.6% to $5.46 ¼ a bushel in Chicago for March delivery – signally falling below its 100-day moving average.
And this despite USDA data overnight showing that cold conditions last week appear indeed to have wrought some damage to US winter wheat seedlings, with the proportion rated “good” or “excellent” down 2 points to 58%.
That is hardly disastrous, certainly. But it is down 4 points year on year.
And the data showed a widespread condition decline, with no states showing an improvement in the crop, and Nebraska seeing a drop of 9 points in the good or excellent rating, albeit to a still creditable 69%.
In Washington state, the rating fell 5 points to 23%.
Cold weather
And further cold weather could be the story of the US winter, if El Nino arrives as some meteorologists foresee, although it would at least by accompanied by rains to boost soil moisture levels in the US Plains.
“Longer term the influence of El Nino conditions, evidenced by warmer than normal sea surface temperatures along the equator in the Pacific Ocean, is expected to bring above-normal levels of precipitation and below-normal temperatures,” Mark Welch at Texas A&M University said in a wheat report.
Still, there is some idea of fears easing over Russian winter wheat, which has been tested by a lack of moisture, and developed poorly.
“Weather forecasters continue to expect temperatures low temperatures in the Russia, but the coldest temperatures and limited snow protection do not coincide all that much,” CBA’s Tobin Gorey said, with snow offering seedlings a blanket against real cold.
Saudi purchase
And the result of the Saudi Arabia wheat tender, which ended up in purchases of 345,000 tonnes of wheat at cut prices, and apparently not from the US, continues to get comment.
“The fact that merchants appear to be offering wheat below replacement cost signals the amount of global wheat that some feel needs to be moved,” said Brian Henry at Benson Quinn Commodities.
This is a particularly concerning signal for US wheat, which is seen as priced out of the market for all but routine destinations.
The wheat Saudi Arabia ordered “may be sourced out of a couple of originations, but it looks like Germany was the odds on favourite to do the bulk of the business,” Mr Henry noted.
‘Aggressive offer’
Corn, meanwhile, repeated its trick of trading between wheat and soybeans, down 0.2% at $3.79 ½ a bushel for March delivery.
The USDA data out overnight actually showed US harvest overtaking the typical pace, at 94% complete, compared with a typical 92%.
That means that “about 770m bushels are still in the field in the area impacted by the US storm, with about half of that in Michigan, Ohio, and Wisconsin,” Dr Welch noted.
There is less concern over US corn exports than wheat.
“Ukraine continues to have an aggressive offer,” Mr Henry said, but added that “I doubt their offer is very deep on shipments after the first of the year”.
Cotton gains
In New York, cotton for March added 0.5% to 59.10 cents a pound, continuing to be pulled towards that 59-60 cents-a-pound level, and helped into some recovery by the slowish pace of the US harvest.
US farmers have 77% of their cotton in the barn, compared with a typical 83%, reflecting a poor pace in the southern Plains.
In both Oklahoma and Texas, growers have harvested less than 60% of their cotton.
