Fresh China worries weigh on soybeans and corn

September 2nd, 2015

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Category: Grains, Oilseeds

Beans_Corn_Soy_Lentils450x2(Agrimoney) – Agricultural commodity markets once again turned a worried eye on China, as fresh evidence of a manufacturing slowdown emerged, with row crops bearing the brunt of the sell-off.

The Chinese Purchasing Managers Index (PMI), which tracks demand from manufacturers, was reported at 49.7 for August, down from 50.0 for the previous month, where any number below 50 suggests contracting demand.

Further bad news of demand from China, the world’s biggest commodity importer, panicked markets, as oil prices fell back after seeing strong gains in the previous three trading day.

Oil prices have been rallying on the prospect of supply restriction agreements between the oil cartel Opec and key non-Opec exporters.

Brent crude fell 7.8% to $49.83 a barrel.

Sector reform

There were also concerns that the Chinese government is poised change in the corn price support system, which keeps Chinese corn prices well above global levels.

Richard Feltes of R.J. O’Brien reported “talk of a 20% cut in minimum pricing”.

Mr Feltes also reported a rumours of a longer waiting period for sorghum and barley import permits, to prevent these feedgrains from undercutting corn, and preventing the government from selling down its massive corn stocks.

Demand fall-off

Cheaper Chinese corn would not only weigh directly on global prices, but could lead to a reduction in the proportion of soybeans used in feed.

China is the world’s largest soybean importer.

Darrell Holaday of Country Futures reported concerns over the prospect of a falloff in Chinese soybean demand, noting that the USDA “expects China to buy 28 million tons of US soybeans in the 2015-16 crop year.”

“The concern is that that they are way behind recent years pace where they total has been 27m-28m tonnes,” he said.

Mr Feltes noted that agricultural markets are at this moment “susceptible to outside forces” as they await confirmation of this seasons US soybean and corn yields.

Fresh rains

And in the US, the 6-10 day Midwest weather forecast turned wetter, adding further pressure to row crops.

“Rains in the norther Plains and Prairies will slow spring wheat harvesting again, but rains in the north-western Midwest would favour late growth of soybeans,” said MDA weather services.

And a weekly crop report by the US Department of Agriculture reported soybean conditions at 63% good or excellent, where markets had expected a 1 percentage point decline.

There was also evidence of slowing US soybean exports, as the USDA reported export inspections of 184m tonnes last week, down 12% from the week before.

November soybeans closed down 1.4% at $884 ¾ a bushel.

Condition down

The USDA saw corn conditions down 1 percentage point from last week, at 68% good or excellent, in line with trade expectations.

December corn closed down 1.9% at $369 a bushel, its lowest level since August 12.

Meanwhile dryness in the US southern plains area, ahead of the planting of next season’s winter wheat helped support prices.

And US Wheat Associates flagged the low quality of the US soft red wheat crop, after undue wetness caused the spread of fungal infections.

Chicago December wheat went sideways, to close at $484 a bushel, above Monday’s contract lows.

Coffee sinks

Fresh bad news from China pushed the Brazilian real down around 2% to new 12-year lows against the US dollar.

A weaker real means stronger local currency returns for farmers in Brazil, the world’s largest sugar and coffee exporter, supporting production.

December arabica coffee settled down 2.8% 120.80 cents a pound.

November robusta coffee settled down 0.5% in London, at $1,603 a tonne.

El Nino looms

Sugar markets are also highly exposed the real.

“The outlook for the Brazilian currency and the economy is still bearish and sugar will be capped accordingly,” said Nick Penney, senior trader at Sucden Financial.

But sugar prices got some support from the worsening El Nino fears, as the Australian Bureau of Meteorology reported the strongest effect in nearly two decades.

El Nino is supportive to sugar, as the phenomenon is associated with dryness in key producing regions including India, south-east Asia and Australia, although it can also cause beneficial rains in the Americas.

But despite the prospect of weak monsoon, trading house Czarnikow saw Indian sugar production reaching record levels next year, thanks to maturing canes after last season’s replanting.

October raw sugar in New York settled up 0.02 cent, or 0.2 percent, at 10.71 cents per pound.

Clothing sector demand fears

And cotton suffered amid fears of contagion from China to key clothing manufacturers in Asia.

Cotton markets have also been hit by the continued slow pace of sales from China’s state cotton inventories, indicating sluggish demand.

However prices got some support as the USDA lowered condition ratings for the US crop.

December New York cotton settled down 0.6% at 62.70 cents a pound.

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