(Agrimoney) – “Jaw dropping”, “widow maker”, “impressive”, “excessive” – just some of the descriptions being attached by brokers to this month’s rally in grains and soybean futures.
But what impact have the gains had on demand?
Sure, we have heard plenty about the potential dent to world corn and soybean supplies from excessively dry weather in central Brazil, and inundations in north eastern Brazil.
However, if price rises do too much to deter users, at a time when supply prospects, let’s face it, remain pretty favourable…
‘Trade is buzzing’
“The trade is buzzing about the possibility of being able to sell more [US] soybeans and soymeal on the export market due to wet conditions in Argentina,” said Brian Henry at US-based broker Benson Quinn Commodities.
That is not an unrealistic expectation, given the extent of wetness in Argentina, a major soybean exporter, and the top shipper of soymeal (and soyoil), more on which will be revealed later in a weekly report by the Buenos Aires grains exchange.
And the “buzz” has been reflected, latterly, in spreads between soybean futures, as well in the flat price.
‘Spread exploded’
Sure, the rise in Chicago’s best-traded July soybean contract has been remarkable, with the contract on Thursday putting in a 15-month high of $10.35 a bushel, before easing back to $10.32 ¾ a bushel as of 09:40 UK time (03:40 Chicago time), a gain of 1.4% on the day.
At that level, the contract is up 12.4% so far this month.
But also astonishing was a move in the spread between the July contract and the, say, November lot, which in the last session shifted from minus $0.01 ¼ a bushel to plus $0.19 ¼ a bushel .
“One of the unique aspects of Wednesday’s price action was the explosion of the old crop/new crop spreads,” said Joe Lardy at CHS Hedging
“The July-November spread has been locked in a very tight $0.05-a-bushel range for over five months.”
On Wednesday, “the spread exploded”, so giving buyers a reward for delaying purchases until later in the year, and potentially acting to stem near-term demand.
‘Believe it when we see it’
Was the move justified?
“Fundamentally we are not seeing the bean tightness or basis moves that would justify this type of price action,” Mr Lardy said.
Benson Quinn Commodities’ Brian Henry said that while “I don’t doubt more business will be done” by US exporters thanks to Argentina woes, “whether or not it is enough to support the current prices remains to be seen”.
At Futures International, Terry Reilly said: “Traders are betting global export business will be shifted to the US. We will believe when we see it.”
Data later
And there will be some indication later of the extent of higher prices on demand for US crop exports, with weekly data from the US Department of Agriculture on orders.
That said, of course, the data will be for the week up to last Thursday, so not include the implications of the latest jump in flat prices, and indeed in spreads (which have seen the discount eroded in the corn complex too, but less dramatically than in soybeans).
Soybean export sales are expected to come in at 200,000-500,000 tonnes for old crop, and at up to 200,000 tonnes for 2016-17.
The gain in soybean futures indicated that most investors were not nervous over the data, nor indeed over the risk of soymeal export sales falling below the 100,000-300,000 tonnes for last week that the market is expecting.
Soymeal futures for July were 2.4% higher at $329.10 a short ton, having earlier touched an eight-month top of $330.40 a short ton.
Soymeal futures too have showed a notable jump in the July-to-December spread in the last session, from a discount of $3.30 a short ton to a premium of $4.60 a short ton, with the gap widening further on Thursday to $6.30 a short ton.
And soyoil for July was up 1.0% at 35.28 cents a pound – after earlier hitting a 17-month high of 35.43 cents a pound – and fuelling a1.2% rise to 2,742 ringgit a tonne in prices of rival vegetable oil palm oil in Kuala Lumpur.
Brazil already bought US corn?
For corn, the US export sales data are expected to come in at 900,000-1.0m tonnes for 2015-16, and 100,000-250,000 tonnes for 2016-17.
Expectations for shipments of the grain have taken an extra boost from import needs by Brazil – better known as an exporter but which, after overenthusiastic shipments last year, and with dryness concerns over its forthcoming safrinha corn harvest, has focused on imports.
Brazil’s ditching this week of 8-10% export taxes on corn from outside the Mercosur block has already borne fruit in terms of orders from the US, some investors believe.
According to market sources, an order of 136,000 tonnes of US corn revealed on Wednesday by the USDA, and booked to an “unknown” import destination, was “likely” bought by Brazil, said Richard Feltes at Chicago broker RJ O’Brien,
“Cash sources indicate that… further US corn sales to Brazil will likely occur soon to allow arrival before the safrinha harvest is under way,” Mr Feltes added.
Corn vs soybeans
Meanwhile, Argentina’s wetness may also have an angle in helping short-term demand for US corn, given that it may direct harvest attention in the South American country to the oilseed rather than the grain.
“With the Argentine soy crop more at risk than corn, look for farmers to focus primarily on pushing the soy harvest along—further delaying execution of Argentina’s corn export commitments,” Mr Feltes said.
Certainly, Chicago corn futures for July were 0.1% higher at $4.00 a bushel, looking for their first close since October beginning with a $4.
‘Carryout stocks remain large’
Chicago wheat was modestly higher too, up 0.2% at $5.12 ¾ a bushel for July delivery, earlier setting a fresh five-month high of $5.13 ¼ a bushel.
The headway is seen largely as a reflection of higher values of corn and soybeans, and a round of short-covering, rather than any improved fundamentals in the grain itself.
Indeed, “for wheat, the global supply and demand situation has not improved, forecast carryout stocks remain large”, said merchant Nidera Australia, adding that “this will be a factor that weighs on the market.
“US wheat cropping conditions are improving following better-than-expected rain across much of the hard red winter belt. Conditions are said to be ideal.
“Cropping conditions throughout Europe and the Black Sea continue to impress.”
Canadian sowings
US export sales data for wheat is expected to come in at up to 300,000 tonnes of old crop and 100,000-250,000 tonnes for 2016-17.
And the market faces too data on Canadian sowings, from Statistics Canada, expected to show all-wheat plantings at 23.2m acres, down from 24.1m acres last year.
“Substantially reduced spring wheat acreage in North America could cause some supply issues later in the 2016-17 marketing year, although probably not without weather/production issues this summer,” Benson Quinn Commodities said.
Canadian canola seedings are expected to show at 20.4m acres, up from 20.1m acres last year.
