Morning Markets: Soybeans Nudge Higher, Despite China Import Slowdown

(Agrimoney) –  The theme for ag markets over the rest of the week is data.

The big event comes with the release by the US Department of Agriculture of its monthly Wasde report on world crop supply and demand, on Thursday, when Brazilian and Chinese agriculture ministries will also unveil reports.

Friday brings monthly statistics on Malaysian palm oil supplies.

Ahead of all that, Egypt’s Gasc grain authority will later on Wednesday unveil details of its latest wheat tender, which will offer details on the competitiveness of the grain from different origins.

China slowdown

However, the first big data release has already been issued, and went a touch in favour of bears, with Chinese customs officials revealing that the country, the top soybean buyer, imported 5.86m tonnes of the oilseed last month.

That represented a drop of 28% from September, and was a figure below market expectations, according to Shanghai JC Intelligence.

At least the figure was up 12.5% year on year, only marginally behind the average pace of increase for this year, which had up to September been running at 15.5% (and is now pegged at 15.2% by officials).

And there were other reasons too why soybean futures managed marginal headway nonetheless, adding 0.1% to $9.96 ¾ a bushel for January delivery, as of 09:50 UK time (03:50 Chicago time).

Yield downgrade ahead?

The Wasde, after all, is seen as a particularly important data release.

And it is expected to issue a downgrade to the estimate for US soybean production, on which traders are particularly focused.

The average estimate is for the briefing to show a yield of 49.3 bushels per acre, down 0.2 bushels per acre from the current figure.

But there are ideas of a cut as low as 48.9 bushels per acre, and indeed some circumstantial evidence that US soybean supplies are a little tighter than some investors may have thought – or at least, that farmers are very unwilling sellers.

Crop smaller than thought?

One is the dearth of deliveries against the expiring Chicago November soybean contract, with just the original (initially 50) receipts issued on first notice day continuing to circulate, until last night when ABN Amro added a further 100.

Another is an easing in inventories available for delivery against futures.

“Beans moving into pipeline appear to have slowed as well, with deliverable stocks dropping by 1.7m bushels last week from the prior week,” Benson Quinn Commodities noted.

“Year-on-year, deliverable stocks were down 1.0m bushels from same week last year, and first time in two years that deliverable stocks were down versus same week a year ago.

“Is this just a seasonal dip or does drop in deliverable stocks support trade’s opinion that the 2017-18 soybean crop is not as large as USDA’s October estimate?”

‘Could underpin prices’

As an extra cause for some support to soybean prices, there are fresh worries over weather in central Brazil too, where farmers have been sowing soybeans amid persistent dryness concerns in some areas.

While rains are forecast over the next week or so, including in the key state of Mato Grosso, “the second week of November still shows a dry bias for most of Brazil,” said Terry Reilly at Futures International.

If realised, this dryness “could gradually underpin soybean prices”.

‘Talk of good yields’

The Brazilian dryness is viewed as a potential threat to (first crop) corn output too, with ideas according to a Bloomberg poll that the USDA will in the Wasde cut by 1.6m tonnes to 93.4m tonnes its forecast for the South American country’s total production of the grain in 2017-18.

Furthermore, expectations are waning for Black Sea corn supplies, with UkrAgroConsult cutting its forecast for Ukraine’s harvest by 500,000 tonnes to 25.5m tonnes, with shipments pegged at 19.8m tonnes, a downgrade of 200,000 tonnes, and well below last season’s 21.2m-tonne total.

Still, there are expectations of the USDA, in the Wasde, raising its estimate for the US corn yield, by 0.6 bushels per acre to 172.4 bushels per acre, given talk of continuing strong yields from the country’s slow harvest.

“Continued talk of good yields trumps all talk of demand and delays,” said Benson Quinn Commodities.

Corn futures for December dipped 0.3% to $3.64 ¾ a bushel.

‘Buyers are increasing their purchases’

Indeed, Tregg Cronin at Halo Commodity Company said that for the grain and oilseeds complex as a whole, “it doesn’t appear as though our markets are ready to sustain any sort of gains until we get past this week’s Wasde or know more about South American weather”.

Certainly, December wheat futures also eased 0.3%, to $4.26 a bushel for December, weighed by ideas that the Wasde will remind investors of the weight of world supplies, with Monday’s data showing improvement in the condition of the US winter crop little help either.

Sure, there is demand around, with Algeria in the market as well as Egypt.

“Buyers are increasing their purchases in this context of cheap prices,” said Agritel.

“Considering the short notice of delivery for the Algerian tender, French origins should be preferred.”

However, Russia remains the origin to beat, with Benson Quinn Commodities noting that “Russia remains the cheap offer” and adding that “Argentina could be the cheapest on the Algerian tender,” with “EU values too expensive”.

‘Hefty buying’

In New York, cotton futures for December edged 0.2% higher to 68.23 cent a pound, recovering a little of the ground lost in the last session.

That fall “has taken prices to the low side of the very recent ranges” said Tobin Gorey at Commonwealth Bank of Australia, flagging ideas that there may indeed be cause for a bit of price floor at such levels.

He highlighted “hefty buying that supported prices at 68 cents a pound”.

The Wasde is expected to downgrade the US cotton harvest a touch, to 20.9m bales, from a current estimate of 21.12m bales, with the forecast for year-end stocks seen trimmed by 100,000 bales to 5.80m bales.

Palm up

Meanwhile, Kuala Lumpur palm oil added 0.7% to 2,805 ringgit a tonne.

The China import data for last month showed edible vegetable oils volumes of 470,000 tonnes, down 22% month on month but up 52% year on year.

Anglo Eastern Plantations forecast that crude palm oil prices “should remain relatively stable” for the rest of 2017, “especially with the coming monsoon which is expected to disrupt fresh fruit bunch production”.