Soybean rally falters. So does selling in wheat

April 16th, 2015

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Category: Grains, Oilseeds

Beans_Corn_Soy_Lentils450x2(Agrimoney) – The rally in soybean futures in China’s Dalian exchange showed signs of slowing.

The revival in crude oil prices ran out of steam altogether.

Both factors had negative implications for soybean futures in Chicago, which indeed started a little soft, underperforming wheat this time.

Dalian soybeans have recovered strongly from contract lows set last week – in a rally attributed by some traders to a squeeze on investors with short positions, which are looking a little time-limited with the expiry of the May contract approaching.

But May futures closed up only 0.2% on Thursday at 4,226 yuan a tonne, and the September contract eased 3 yuan to 4,099 yuan a tonne, with soymeal easier too in this timeframe.

Best-traded September soymeal fell 0.2% to 2,705 yuan a tonne.

‘Don’t panic’

Meanwhile, Brent crude fell 1.3% back below $63 a barrel as of 09:55 UK time (03:55 Chicago time).

Crude markets are a key indicator for prices of vegetable oils, which are used largely in making biodiesel.

Sure, palm oil managed to eke out a 0.1% gain to 2,153 ringgit a tonne in Kuala Lumpur, but it had some particular supports, with Indonesia about to impose an export levy (benefiting the competitiveness of Malaysian supplies) and some reassurance from Oil World head Thomas Mielke.

Mr Mielke said that prices were unlikely to break below 2,000 ringgit a tonne.

“That is the major message I wanted to give – don’t panic,” he told a conference, flagging the broader pressure from a lower-priced vegetable oil environment.

“The weakness in oil prices has reduced the profitability of rapeseed and sunflower seed production. Farmers are reacting quickly – production is cut back,” he said.

‘Shocked the trade’

However, in Chicago, soyoil failed to follow suit, easing back 0.2% to 31.75 cents a pound for May delivery, and giving back some of its strong gains of the last session.

And soybeans themselves also eased too.

Here, other dynamics are at work, in the form of the reaction to Wednesday’s US industry crush data for last month.

On the face of it, these data were mega bullish, in showing the crush at 162.8m bushels last month, well above market expectations figure.

“The crush report shocked the trade by reporting March soybean demand 7.6m bushels above trade expectations,” said Terry Reilly at Chicago-based broker Futures International.

Soyoil stocks

Nonetheless, reception in terms of pricing was mixed in the last session, a factor some attributed to “buy the rumour, sell the fact” trading.

But there may be more to it than that, with the strong crush last month potentially implying a build-up of stocks of soy products.

For soyoil, larger-than-expected inventories, of 1.42bn pounds, were deemed not so serious, given that the extra soybean crush implied that the stocks should have been bigger.

At broker RJ O’Brien, Richard Feltes highlighted “better-than-expected soyoil offtake” last month.

‘Bearish sore apple’

There appear to be more worries over soymeal, for which exports last month of 757,000 short tons were deemed shy of hopes, and termed by Benson Quinn Commodities the “bearish sore apple in the crush data”.

And there are domestic concerns for soymeal investors to consider too, with a succession of findings of bird flu in US poultry flocks provoking worries about demand on this score.

“A culling of nearly two million turkeys should not have a major impact on meal demand with a projected population of about 235m produced in 2014,” Futures International’s Terry Reilly said.

“But locally it will be felt. A decline in soybean meal demand will eventually eat away at the strong nationwide crush,” a dynamic which “is seen more pronounced with slowing US export demand”.

 Data later

More on exports will be known later with weekly US export sales data.

But for now, a decline of a modest 0.2% to $310.90 a short ton in Chicago soymeal futures was some reassurance for soybean investors.

Soybeans for May dropped by 0.2% to $9.62 ¾ a bushel.

Weekly export sales are expected for soymeal to come in at 50,000-150,000 tonnes for this season, and 25,000-100,000 tonnes for 2015-16.

For soybeans, they are forecast at -50,000-150,000 tonnes for old crop, and 250,000-450,000 tonnes

‘Planting delays’

Meanwhile, for corn US export sales last week were expected at 400,000-600,000 tonnes for old crop and at up to 100,000 tonnes for 2015-16.

The prospect of such statistics was not enough to prevent a fall of 0.3% to $3.75 a bushel in May futures, with the negative of lower oil prices weighing too.

(A major use of corn in the US is for making ethanol.)

That said, the idea of sowing delays remains a strong background theme.

“Planting delays across the central Midwest and eastern Corn Belt will continue throughout this week into next week,” Mr Reilly said.

‘Oversold territory’

Wheat was the leader among Chicago’s big three for a change, even by easing 0.25 cents to 4.88 ¾ a bushel for July delivery, the best-traded contract.

Ideas remain that wet weather for the US Plains are reviving condition in the hard red winter wheat crop.

The question here is whether the market has not done enough already to mark prices down.

“One might argue a $0.45-a-bushel drop from Friday’s high is enough on the potential for the hard red winter wheat crop to get some catch up moisture, Brian Henry at Benson Quinn Commodities said

“Perhaps a ‘sell the rumour, buy the fact’ is developing given the recent break?

“Momentum studies remain negative, but all three US wheat markets [Chicago, Kansas City and Minneapolis] have quickly drifted into oversold territory.”

‘Record net short position’

Besides there is the observation that hedge funds already have a stack of short positions in Chicago wheat, in which they may want to take profit, putting upward pressure on prices.

“We’re probably looking at a record net short fund position in Chicago” when weekly position data are published on Friday, Mr Henry said.

Adding to shorts into the weekend merits some caution.”

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