AM Markets: Soy Futures Hit 13-Month Low, Amid China Worries

(Agrimoney) –  One of the best hopes for soybean bulls for prices of the oilseed recovering on Friday may be the calendar. Monday brings the Memorial Day holiday in the US, meaning an extra day without being able to trade, and potentially spurring some investors with short positions to take profits.

The profits are there – soybean futures for July set a 13-month low in the last session, and down nearly 4% over six sessions.

But there is always the risk that a change in the US weather outlook to something worrying for remaining sowings, or for newly-seeded crops, could take some of those gains off the table.

‘Market not appreciating the problems’

Still, in early deals, the gains for short investors just racked up further, with July soybean futures racking up a fresh 13-month low of $9.35 ½ a bushel before recovering a little ground to stand at $9.36 ¾ a bushel as of 08:45 UK time (09:45 Chicago time), down 0.3% on the day.

Not that the market is lacking some weather concerns.

In the Midwest over the next few days, “active rains across eastern areas will stall soybean planting,” said weather service MDA, if adding that “fieldwork should improve a bit in western areas”.

At Global Commodity Analytics, Mike Zuzolo said that “the past weather, and the forecasted weather for the next seven days strongly suggest that the market is not appreciating the problems that soybeans are having, along with corn, this planting season in the US”.

‘Weather going to improve’

Still, better weather may lie ahead, with Terry Reilly at Futures International noting that  “US Midwest temperatures will be warming next week, which will help to stimulate faster drying rates and perhaps a better opportunity for fieldwork between rain events”, although it “will not be absolutely dry”.

Benson Quinn Commodities flagged “indications that the weather through much of the Midwest is going to improve considerably in early June”.

And then there are the demand worries to factor in, despite weekly US export sales data for soybeans on Thursday that were, on the face of it, decent, at 472,700 tonnes.

That was ahead of the figure of at best 400,000 tonnes that investors had expected, besides the 355,300 tonnes sold the previous week.

‘Collapsing crush margins’

However, Benson Quinn Commodities noted that China, the top soybean importer, “only bought one cargo” of those US export sales.

This figure comes at a sensitive time for Chinese demand dynamics, with the broker adding that the sole order “added to bearishness” on the market from the country’s “negative crush margins”, which imply a reduced appetite for shipments.

Indeed, soybean crush margins as measured in Shandong “are collapsing, and now at three year lows”, Global Commodity Analytics’ Mike Zuzolo said.

‘Demand is very unlikely to rise’

This dynamic reflects a retreat in margins for hog producers, major buyers of soymeal, to two-year lows.

Indeed, Chinese national inventories of soymeal are “now back to 2012 levels”, Mr Zuzolo said, adding that the country’s “soybean demand is very unlikely to rise except on weaker prices”.

That said, in China itself, Dalian soybean futures for September, while down 0.3% at 3,843 yuan a tonne overnight, remain well above April lows.

The soymeal chart looks in worse shape, with September futures down 1.0% to 2,706 yuan a tonne, the contract’s lowest close in seven months.)

‘Record looks to be shattered’

Meanwhile, what demand there is is seen more likely to go to South America, where stocks from the harvest are building, and where weaker currencies following the real’s slump last week have only enhanced competitiveness.

Joe Lardy at CHS Hedging said that the soybean market was feeling “pressure from South America, as it looks like Brazil will ship out a record amount of beans in May.

“The previous record looks to be shattered this month by 2m tonnes.”

He noted too an upgrade by Argentina’s ag ministry to 58m tonnes in its estimate for the domestic soybean crop, ahead of the 56m tonnes expected by the US Department of Agriculture.

‘Keeps moving sideways’

The weakness spread a little into corn too although, down 0.1% at $3.68 ¾ a bushel, the July contract remains comfortably within its trading range, and only a smidgen below a bunch of moving averages which have coalesced near.

“The corn market continues to trade in a pretty narrow $0.10-a-bushel range,” Mr Lardy said.

“Without a big weather catalyst the market just keeps moving sideways.”

He added that “the longer this happens the moving averages converge. The 10, 20, 50, and 200 day averages have come together at $3.70 a bushel.”

(This backs indeed the theme of a lack of volatility which has been named as holding back profitability for traders in a number of financial markets.)

Corn is being protected from the slump which has afflicted soybeans by factors including worries over US replantings, thanks to persistent Corn Belt wetness, by the prospect that sowings of the grain were going to be lower anyway, and the fact that Brazil’s safrinha crop, the source of its exports, has yet to come onstream.

‘Stalling fieldwork’

Chicago wheat, meanwhile, eased 0.2% to $4.29 ¾ a bushel for July, staying just ahead of its 10-day moving average, maintaining a gentle decline, as they often do at this time of year, with US winter wheat harvest ramping up.

Still, spring wheat has been on an upswing this week, adding more than 3% in Minneapolis for July in the six sessions to Thursday’s close, although easing 0.1% to $5.61 ½ a bushel in early deals on Friday.

The gains reflect worries over wetness in the Prairies, which are hampering efforts by Canada’s farmers to plant all the premium spring wheat that they want to.

“Notable rains have now returned to western areas, which are stalling fieldwork,” MDA said.

“The rains should push into central and eastern Prairies crop areas over the next few days, slowing planting there as well.”

Hurry up, and wait

Data overnight from Saskatchewan, the top wheat-growing province, in fact showed that farmers had made good use of an earlier drier window.

“Seeding is advancing quickly in the province thanks to warm, dry weather,” said provincial officials.

“Producers now have 60% of the provincial crop in the ground,” a figure which includes all crops.

“Many producers have completed seeding operations.”

However, this experience is not universal, with Saskatchewan officials noting that “others will need several more weeks of warm, dry weather.

“At this time, it is estimated that 5% of acres will not be seeded due to excess moisture.”

‘Competitive prices’

In New York, old crop cotton futures extended their newly-rediscovered stability, flat at 77.16 cents a pound for July – ie not far from levels ahead of mid-month price spike to near-three-year highs.

The new crop December lot eased 0.2% to 73.05 cents a pound, but remained well ahead of a key technical point.

“The December futures continuing to steer clear of the lows 72s is a source of short-term confidence,” said Tobin Gorey at Commonwealth Bank of Australia, noting that there was a build-up in put options at this level too, highlighting it as a sensitive price point.

“Investors are less likely to sell their heavy long positions while those levels are avoided.”

He added: “US export sales are continuing at a brisk pace so the market will at least take comfort that prices are at competitive levels.”