(AgriMoney) – Grains and oilseeds began Friday a little more resolutely than where the last session left off, but not by much.
That said, there is no guarantee this will last of course with the market in a somewhat fickle mood, as befits the time of year, as one US broker explained.
“For now we recommend caution while hedging/trading in December as there are many undertones that can affect prices,” the broker said.
“Many traders go on vacation for the holidays and with that volume drops off. Low volume can sometimes lead to larger price swings.”
‘Four-fold increase in stocks’
Not that large price swings were the issue in early deals, but what movement there was largely downward.
Canola, for instance, edged Can$0.10 lower to Can$448.00 a tonne in Winnipeg for January delivery, after recording a three-year closing low to the last session.
The oilseeds has been pressed by the upgrade last week to the Canadian harvest to a record 18.0m tonnes, leaving buyers, while described as “keen”, without much need to bid up to secure supplies.
“Although keen demand by importers could push Canadian exports to 8.3m tonnes, most of the [canola] production gains are likely to raise carryout stocks,” US Department of Agriculture staff said in a report overnight.
“Season-ending canola stocks are seen climbing to 2.35m tonnes – a nearly four-fold increase from last year’s inventory.”
‘Spooked oilseed markets’
Meanwhile, the Chinese rejection of US corn imports on grounds of containing an unapproved genetically modified variety, besides concerns over cancellations of purchases of US soybeans to switch to cheaper South America supplies, has rattled the canola market a bit too.
China imported 2.9m tonnes of Canadian canola seed worth $1.8bn last year, but has a history of barring purchases on this route over concerns of blackleg, a fungal disease.
“The persistent cancellation of US corn imports by the Chinese has spooked global oilseed markets,” Luke Mathews at Commonwealth Bank of Australia said, although focusing in the main on the impact on the soybean market.
“There is some concern that Chinese buyers may use quarantine measures to cancel some US soybean shipments given the exceptionally fast pace of purchases in recent months and the impending record Brazilian crop.”
‘The timing is suspect’
Such fears continued to hang over the soybean market on Friday, despite the lack of confirmation of such a move.
“At this stage this is all simply speculation,” Mr Mathews said.
Indeed, with Thursday’s US weekly export sales data far stronger than expected, yet soybeans still closing lower in the last session, some investors believe that there are other forces at work.
“The truth is we don’t know what prompted the market to sell-off on Thursday, and the timing is suspect,” one broker said.
After all, a monthly US soybean crush report due on Monday “is supposed to be very strong, and we just had an export sales report almost double of what was expected for old crop soybeans”.
‘Liquidate large positions’
The broker added: “One theory is that the funds use strong fundamental news days to liquidate large positions,” with hedge funds holding a substantial net long position in Chicago soybean futures and options, on which many will be showing a profit.
A clue may come in the day’s open interest report, showing the extent of contracts still open, and which would show a sharp decline if there has been a liquidation drive.
But as of 09:35 UK time (03:35 Chicago time) soybeans were 0.4% lower at $13.19 a bushel for January delivery.
Although soyoilfor January was weak, down 0.8% at 39.69 cents a pound, after a 1.8% tumble to 7,996 yuan a tonne in the May contract on China’s Dalian exchange, Chicago soymeal was little more resolute, fall a more modest 0.2% to $429.30 a short ton.
‘Something had to give’
This after a poor performance in the last session, when soymeal was undermined by news of Argentina winning a South Korean tender for the feed ingredient with prices $40-45 a tonne below US offers.
“The news highlighted the deep discount, which is also relevant in Brazilian soybean offers,” Benson Quinn Commodities said.
“All is not lost as European Union and Middle East destinations continue to shop the US for soymeal, which lends credence to ideas that the trade was simply too long coming into Thursday and something had to give,” the broker added
‘Tide change’
For corn and wheat, in which hedge funds have large net short positions, liquidation would imply a rise in prices.
But sellers remained in charge in these pits too, with corn continuing to be undermined by concerns of the rejection of US cargoes by China, and by a bill proposed by some US senators to ditch the ethanol mandate.
“Whilst the proposal has very little chance of success, it nevertheless highlights the tide change which is occurring against the ethanol sector,” Mr Mathews said.
Corn for March stood 0.4% lower at $4.32 ¾ a bushel, falling below its 10-day moving average which had provided some support of late.
‘Lost its competitiveness’
Wheat for March shed 0.3% to $6.31 ¾ a bushel, but at least avoided setting a contract low, so far.
The contract is being pressed by “huge crops in Canada and Australia, which added to global supplies and made US wheat lose its competitiveness in the global export market, especially at its expensive prices”, Vanessa Tan at Phillip Futures said.
Furthermore, while US conditions remain unduly cold, “winter wheat crops are unlikely to be adversely affected as the snow blanketed the crops, protecting them from the cold temperatures.
The result was a “bearish” outlook for the grain, she said, with Kansas City hard red winter wheat doing no better, falling 0.3% to $6.76 ½ a bushel, and Minneapolis spring relatively resolute, down only 0.25 cents at $6.63 ¾ a bushel, only after strong underperformance.
Harder softs
Among soft commodities, raw sugar began on a stronger note, adding 0.4% to 16.36 cents a pound in New York for March delivery, helped by a Syrian tender for 150,000 tonnes, which raised hopes that prices may have fallen far enough to whet end-users’ appetites.
In the previous 23 sessions, going back to November 11, the sweetener has risen only thrice, losing nearly 10% of this period.
And cotton for March edged higher too, by 0.2% to 83.19 cents a pound, after data overnight showed a further drop in stocks certified for delivery against New York futures, to 59,346 bales, from 61,519 bales the previous session.
