Soy, corn dip despite upbeat post-Christmas talk

December 23rd, 2014

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Category: Grains, Oilseeds

Beans_Corn_Soy_Lentils450x2(Agrimoney) – It is not even Christmas, and investors are already talking about mid-January.

The US Department of Agriculture will on January 12 unveil one of its biggest editions of its monthly Wasde report, including final production estimates for domestic corn and soybean crops.

“The January report is setting up to be a big one for the market,” said Kim Rugel at Benson Quinn Commodities.

One large question on production is how big an area of these crops that US growers really did harvest, with big discrepancies between official USDA estimates and the data coming in from the Farm Service Agency, which handles certifications from growers themselves.

‘Front-loaded demand’

But there are also issues on the demand side of the balance sheet, given the strong US soybean exports, with the US already having sold 86% of the oilseed that the USDA expects it to ship in 2014-15, and with more than eight months of the season to go.

“Export sales and shipments have been very strong so far just as they were at this time last year,” one US broker noted.

OK, the pace is likely to drop off rapidly.

“China has once again front-loaded its demand and if all goes well in South America this year they will likely cut off their purchases from the US by this spring,” the broker said.

Ms Rugel said: “The marketplace still rightfully expects demand to wane rapidly come the new year as export demand shifts to South America.”

‘Looking for demand upgrade’

Even so, the slowdown could take some time to kick in.

“Sales and shipments last season did not appreciatively slow till February and March respectively,” Ms Rugel noted.

Meanwhile, export sales, and actual shipments, remain strong, with exports last week, as measured by cargo inspections, running at four times the pace needed to meet the full-season forecast.

In the January Wasde, “trade is looking for USDA to raise demand once again,” she said, if adding that, even with a cut to the US production figure too assuming a lower acreage estimate, “this will not nullify record global carryout”.

‘Nightmare for bulls’

For corn, Richard Feltes at Chicago broker RJ O’Brien noted widespread ideas that another report released on January 12, on US grain stocks, will show inventories some 350m bushels below levels that had been factored in.

This reflects “suspicion that lucrative livestock/ethanol margins have consumed large amounts of corn”.

Factoring in the ideas too that corn acreage last year was below the current USDA estimate, and he suggested that the “corn market will readily hold value in ramp-up to January crop report”.

He added: “The nightmare for bulls would be a convergence of higher-than-expected 2014 US corn production, lower-than-expected corn feed use, and the largest managed fund long in corn futures and options since May,” as highlighted by regulatory data released late on Friday.

Oil price fears

Not that this could save corn from a small decline in early deals on Tuesday, with the March contract down 0.1% at $4.11 ¼ a bushel in Chicago as of 09:30 UK time (03:30 Chicago time).

This came, though, in thin holiday trade, and against a backdrop of fears for further falls in oil prices, after Ali al-Naimi, the Saudi oil minister, and the de facto leader of Opec, said that the cartel would defend market share over pricing in crude.

“It is not in the interest of Opec producers to cut their production, whatever the price is,” he told the Middle East Economic Survey.

“Whether it goes down to $20, $40, $50, $60 [a barrel], it is irrelevant.”

Brent crude was in fact 0.4% higher at $60.35 a barrel, although dipping in and out of positive territory.

There was also some temptation to take end-of-year profits, with the March contract in the last session setting a five-month closing high.

‘Could keep a floor under prices’

Soybeans eased too, by 0.1% to $10.36 ¾ a bushel for January delivery, even though investors have begun taking a more positive view of soyoil, which has been the weak link in the complex.

“The short-term downtrend in soyoil ended and turned sideways, no doubt helped by the sideways turn in crude oil which restores ideas that biodiesel demand could keep a floor under soyoil prices,” broker Doane said.

At New York-based Jefferies, Anne Frick said that “after dipping to new lows on December 2, soyoil prices have traded back into what appears to be a bottoming trading range.

“On further weakness in soybeans, we think it is more likely that the soymeal will join it than soyoil.”

It helped soyoil, which added 0.8% to 32.29 cents a pound for January, that rival vegetable oil palm oil gained 1.8% to 2,209 ringgit a tonne, helped by Monday’s upbeat data from Intertek on Malaysian palm exports.

Meanwhile, flooding is hampering Malaysian production.

‘Long-term trend higher’

This time, wheat showed gains too, helped by a bounce earlier from its 10-day moving average.

Indeed, technicals still offer support to the grain.

“The unusually long seasonal rally has persisted long enough now to turn the long-term trend higher on the monthly wheat charts,” said Doane.

That is offsetting downward pressure from ideas that Russia’s export squeeze may only limit some 2m-4m tonnes of wheat.

“It doesn’t seem like that total would have much effect, if the European Union can still execute suitable quality,” Benson Quinn Commodities said.

“That may be a bigger question,” after the poor quality harvest this year in many EU countries, and indeed the likes of Canada too.

Chicago wheat for March gained 0.6% to $6.29 ¼ a bushel.

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