Palm oil aims at best month since 2009. But grains soften

September 30th, 2014

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Category: Oilseeds

Oil Palm Fruits 450x299(Agrimoney) – The calendar points to a negative day for grains.

Month ends, and quarter ends, have a habit of bringing price falls, as funds withdraw cash to pay investors and bonuses, traders say.

And it is a Tuesday too, by lore the day of turnarounds in Chicago futures, a dynamic which would this time mean falling prices, after the higher closes to the last session.

On a seasonal view, it is US corn and soybean harvest time too, typically a period of price weakness during years such as this one when huge production is expected, refilling supply pipelines and weighing on prices.

Data later

Still, while grain and soybean futures indeed started the day generally weak, declines were muted.

Investors appeared reluctant to rock the boat too much ahead of a quarterly US Department of Agriculture report later, on domestic grain inventories, which has a history of creating large waves.

Today’s report will represent the last hurrah of the tight grain stocks of 2013-14, showing inventories as of the end of a season marked by highly squeezed soybean inventories, and corn stocks which were not replenished nearly as much as many investors had originally expected.

Any small deviation in the figures from expectations might, in another year, provoke large price swings.

Supportive not supportive

But not, many investors believe, this time, when record US corn and soybean crops are being harvested.

Take corn, for instance, in which the expectation for today’s report to show a stocks number of 1.185bn bushels.

“Given the yields being reported to this point, a supportive surprise on this number shouldn’t offer much support [to prices],” said Brian Henry at Benson Quinn Commodities.

And if the stocks number turns out larger than forecast, meaning more corn than was thought and implying lower prices?

“Given the oversold nature of the market, one could make the argument that the short position is oversubscribed regardless of negative fundamentals,” Mr Henry added.

Harvest lags

Besides, an extra prop, not all the numbers from last night’s USDA crop progress report were negative.

Sure, the condition of the crop stayed at an unusually large 74% rated “good” or “excellent”, supporting ideas of strong yields.

“Normally we see a seasonal decline in these ratings leading up to harvest but this year they have held strong all the way through,” said Terry Reilly at Futures International.

But harvest progress was weak, at 12% complete as of Sunday, compared with the typical 23%, a reflection in part of a crop behind in development after a cool summer.

A lagging harvest means less, or at least deferred, harvest pressure on prices, and gives some accommodation for risk premium too.

Iowa factor

Besides, combines are moving to areas where yields might not repeat the standout performances seen further south.

“Row crop markets sense that yield updates will be more variable in the coming days as harvest expands across Iowa,” the top US corn and soybean growing state, “where growing conditions were more variable,” said Richard Feltes at Chicago broker RJ O’Brien.

He noted too “chatter about light end-user pricing”, which has been flagged by many other brokers too, with farmers unwilling to sell at prices which, for corn, touched a five-year low in the last session.

Returning to the data front, there are statistics due later too from South Africa, the continent’s largest corn producer, with the Crop Estimates Committee expected to nudge higher by 83,000 tonnes to 14.39m tonnes its estimate for domestic output.

Crop improvement

Corn futures for December stood unchanged at $3.25 ¾ a bushel as of 08:55 UK time (02:55 Chicago time).

Soybeans were lower, by 0.5% to $9.19 ¼ a bushel for November, undermined by a surprise increase in the condition of the US crop, upgraded by 1 point to 72% rated “good” or “excellent”.

“Normally we see a seasonal decline in these ratings leading up to harvest but this year they have held strong all the way through,” one US broker said.

As an extra negative for the oilseed, China, the top soybean importer, on Wednesday begins its Golden Week celebrations, likely to bring a lull in orders.

Russian competition

Wheat for December eased 0.4% to $4.79 ¼ a bushel in Chicago, losing again a battle to take its 10-day moving average, which it narrowly failed to close above in the last session for the first time this month.

There are signs of Russia fighting back in price competitiveness after losing out in some high profile wheat tenders, notably being undercut by European Union and US supplies in tenders by Gasc, the grain authority for Egypt, the top wheat importing country.

The price of Russian wheat with 12.5% protein dropped $8.50 a tonne last week to $237 per tonne in deep-water ports, according to SovEcon, with offers in shallow-water ports down $3.50 at $215 per tonne.

“This time Russian wheat was not able to ignore a new wave of sales on global markets,” SovEcon said.

Rival consultancy Ikar lowered to 3.7m tonnes, from 4.2m tonnes, its forecast for Russia’s wheat exports this month.

‘Fair amount of interest’

Furthermore, the USDA crop progress data showed healthy advancement in US winter wheat plantings, at 43% complete as of Sunday, 7 points above the average, and supporting ideas of a large acreage, as Agrimoney.com has reported.

Still, there are some more positive pricing factors, with ideas for Australia’s dryness-pressed crop appearing on a downward slide from the latest official Abares forecast of 24.23m tonnes.

“Estimates on the Aussie harvest are around the 23.5m-tonne levels, with high side estimates above 24m tonnes,” said Benson Quinn Commodities’ Brian Henry.

He also noted that, on the demand side, “there is a fair amount of wheat interest in the global market with Taiwan, Turkey, Oman, Ethiopia and a chance Morocco may buy something”.

But staying with demand, there is the high competition in the feed market to factor in, with livestock farmers having the choice in many countries of ample quantities of low quality wheat, besides huge corn supplies.

“The wheat market unlikely to base until corn prices bottom,” said RJ O’Brien’s Richard Feltes, foreseeing that this may not occur until after a benchmark USDA crop report in November.

‘Past its worst’

Elsewhere, in Kuala Lumpur, palm oil prices extended their rise, adding 1.2% to 2,214 ringgit a tonne, at the end of a month which has seen strong Malaysian exports – seen by Intertek has having risen by 16.3%, as buyers exploit a temporary removal of export taxes.

Meanwhile, production is seen as having proved weak this month, potentially a hangover from a dry spell early in the year.

“There are already rumours that Malaysian palm oil production may have fallen by about 10% month on month in September,” said Edward Hugo at London-based VSA Capital,

He voiced increasing confidence that a five-year low in prices early this month “represents a bottom and pricing could strengthen from here, given the probable yield impacts from first-quarter dryness and the removal of export taxes in Malaysia and, most likely, Indonesia”.

Kuala Lumpur futures are on course for a September price gain of nearly 15% – the best monthly performance since April 2009.

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