(Agrimoney) – Soymeal rose in early deals.
And that was about all grain investors needed to know in the current market climate, when the feed ingredient is proving a big influence on prices of the soy complex, and through into grains too.
Why soymeal is faring quite so well is a matter of dispute.
Logistics is one issue cited, and the difficulty in gaining space on the US rail network.
“Soymeal cash market is tight on a spot basis with rail freight logistic problems in the east turning nearby demand over to trucks,” Benson Quinn Commodities said noting “double buying” by end-users looking “to secure needs in the short run”.
Richard Feltes at RJ O’Brien said: “Crushers are as yet unable to restore the soymeal pipeline, in part on a railcar shortage, as evidenced by continued firming of meal spreads,”
On the spread issue, December soymeal – in soaring 5.7% to a four-month high of $398.20 a short ton as of 09:30 UK time (03:30 Chicago time) – indeed outperformed again the January contract, which gained 4.2% to $376.20 a short ton.
Sellers’ strike
There is also some talk of slow farmer selling of soybeans themselves, in part thanks to the slow US soybean harvest, which indeed picked up pace last week, hitting 70% complete, but remained well behind the typical 78% finished by now.
Besides Mr Feltes said that he was “hearing more stories about reactivation of previously unused storage space by farmers intent on retaining ownership as long as possible”.
End users, meanwhile, “in the wake of buoyant futures, appear more willing to extend coverage on breaks, while bulls become more confident of the limited remaining upside on US row crop yields”.
‘Got the trade wound up’
Another idea doing the rounds is that soymeal has come into extra demand thanks to a shortage of supplies of methionine, an essential amino acid that cannot be synthesized by livestock (or humans for that matter) themselves, but is gained typically through eating plant matter – or through being added to diet as a supplement.
The squeeze on methionine supplies means hog and poultry producers increasing use of soymeal instead.
“The talk of using more soybean meal in feed to make up for such a shortage got the trade wound up,” said Terry Reilly at Futures International.
“There are other ways to replace methionine such as adding canola meal to the feed equation but this is not the short-term viable solution.”
Corn gains
Whatever, the strength in soymeal futures – which was also evident on China’s Dalian exchange, where the best-traded May contract gained 2.5% to $2,973 yuan a tonne – helped Chicago soybeans for November up 2.3% to $10.36 ¼ a bushel.
And that in turn spread into corn futures, which many investors had been expecting to gain on soybean futures, given an unusually high corn:soybean ratio, yet decent prospects for sowings of the oilseed in South America.
Corn for December gained 1.6% to $3.68 ¾ a bushel.
It helped that corn harvesting was behind too, at 46% complete, compared with a typical 65%, if in line with market expectations.
‘Well below expectations’
And that in turn helped Chicago wheat, despite the strong signal that US prices are already high given by the import of two cargoes of European feed wheat last week.
“US wheat remains uncompetitive in the world market and with plenty of world wheat available, export business should remain slow,” CHS hedging said.
Still, the US soft red winter wheat crop has got off to a poor start, with only 59% rated by the US Department of Agriculture as being in “good” or “excellent” condition as of Sunday, well below expectations of a figure of 68%.
“Initial winter wheat conditions came in well below expectations despite favourable fall weather promoting emergence,” Futures International’s Terry Reilly said.
In Australia, “weather forecasts have useful rain in some eastern regions but the amounts will require follow up”, said Tobin Gorey at Commonwealth Bank of Australia.
“Dry South Australian areas are unlikely to get useful rain.”
Chicago wheat for December gained 1.2% to $5.28 ¾ a bushel.
Energy vs ags
Ags are getting a further headwind from ideas that funds, which earlier this month closed a rash of short positions amid the broad financial market liquidation, are returning with a more generous view of price prospects, encouraged by the improved technical signals issuing from the revived market.
“The idea that capital is rotating into the US ag sector is valid,” said Brian Henry at Benson Quinn Commodities.
“There was some talk of capital rotating out of the energies and into the ag sector.”
Among soft commodities, the trend is offering some relief to New York cotton, which gained 0.1% to 63.75 cents a pound for December delivery.
Sugar sours
However, raw sugar for March fell below 16 cents a pound, down 0.4% at 15.97 cent a pound, continuing to feel pressure from Dilma Rousseff’s victory in Sunday’s Brazilian presidential elections.
Besides being a downer for the Brazilian currency, which hit a six-year low against the dollar yesterday, the reelection of Ms Rousseff is viewed as limiting expectations for a rise in the fuel price cap which has depressed ethanol values and, in turn, cut too for prices of sugar, which competes with the biofuel for cane.
“The election result… makes gasoline price deregulation most unlikely,” Mr Gorey said.
“Without that, ethanol remains less competitive at the pump and so less potential sugar leaks into ethanol – at these sugar price levels anyway. The Brazilian real’s fall only worsens that issue.”
