(Agrimoney) – Are soymeal values about to fall back to earth?
One big negative for the rally in Chicago futures in the feed ingredient – price gains driven by factors including logistical hiccups and a slower-than-expected harvest of the soybeans from the feed ingredient is made – is that interest from importers appears to be turning elsewhere.
US weekly export sales have, in the past two readings, totalled a negative 100,000 tonnes for 2014-15, meaning cancellations have exceeded fresh orders.
And the rationing process appears to be driving buyers to South American supplies.
Kim Rugel at Benson Quinn Commodities flagged talk, noted by many other brokers too, of “two more cargoes of soymeal being switched to South America, weighing on the market”.
CHS Hedging noted that on Tuesday, “South American soymeal and European Union rapeseed meal supplies heading to the US dampened the recent strength in the US soymeal market”.
Another US broker said: “Meal basis in the gulf is now trading at a record large premium to meal basis in Brazil and that could lead to more futures weakness if cancellations continue.”
‘Cash values remain firm’
On the more positive side for prices, “cash basis values in the east still remain firm in spite of export cancellations”, Ms Rugel said.
Furthermore, for the soy complex as a whole, Monday’s “better than expected October crush which should offer underlying support till market sees more sign that pipelines are being replenished”.
And, while rains have arrived in Brazil to encourage farmers to sow soybeans and nearly catch up with the typical planting pace, seedings are late nonetheless.
“There are concerns of a 20-30 day delay in harvest next spring because of the seriously dry soil conditions in central Brazil” earlier on, CHS Hedging said, with a delayed harvest meaning delays in getting crop to port and challenging US trade.
The broker also noted “some concern that the same area could get too much rain during January/February, which could also delay harvest activity”, with the El Nino idea which has moved back up ag investors’ agenda often bringing wetter weather to southern Brazil.
‘Telling dynamic’
Still, soymeal for December fell 1.1% to $374.00 a short ton in Chicago as of 09:20 UK time (03:20 Chicago time).
And, with soymeal having been the prop for the soy complex, and indeed for grains too for much of the last month, the feed ingredient’s decline was a negative for futures in soybeans themselves.
Soybeans for January fell 0.9% to $10.13 ¾ a bushel, having suffered the technical negative too in the last session of surrendering the contract’s 10-, 20- and 100-day moving averages.
“The inability of the soy market to hold gains is telling – especially following a series of constructive events including the US Department of Agriculture’s November crop report,” which raised the forecast for the US yield by less than investors had expected, and “successive weeks of better-than-expected soybean export sales,” Richard Feltes at Chicago broker RJ O’Brien said.
Then, there are the “record-setting weekly US soybean export inspection data, and the largest ever October NOPA crush report” on Monday, showing processing volumes far ahead of expectations, Mr Feltes said.
Benson Quinn Commodities’ Kim Rugel said that the “long range outlook for the beans and soy complex, once the market seems assured of record South American production, is to resume a lower trend”.
But, for bulls, it is also significant to note that the much-watched front-months spread on soymeal futures showed no sign of diminishing further, with the January contract down 1.1% at $359.50 a short ton.
‘January-like freeze’
And with soybeans lower, that dented corn futures too.
One US broker said: “As soymeal gets cheaper this can also reduce the appeal for distillers’ grains (DDGs), and could ultimately weigh on corn prices as well,” with DDGs made from the grain, as byproduct of ethanol manufacture.
Soybeans and corn are also rivals in the ongoing South American planting programme, meaning the values of one tend to follow those of the other more closely.
There are some concerns in the US over the impact of the cold weather in slowing harvest progress.
“The January-like freeze lurks over the Midwest for a few more weeks, delaying the last of the harvest for Wisconsin, Michigan and Minnesota,” CHS Hedging said, saying official data implied that some 1.6bn bushels of corn is still left in the field.
“Michigan folks say it could be over three weeks before they get back in the fields, while Minnesota folks maybe won’t finish harvest until springtime.
But the worries were not enough to prevent corn for December shedding 0.9% to $3.68 ½ a bushel.
“Outside of making working conditions miserable and slowing progress, the cold conditions shouldn’t significantly impact standing corn,” Benson Quinn Commodities said.
Corn vs wheat
Against that backdrop wheat had little chance, undermined not only by the lack of competitiveness of US exports on world markets – which is seeing the country import 45,000 tonnes of French feed wheat – but by a seasonal factor too.
Moore Research data shows a strong tendency for wheat futures to underperform corn from early November until late January, potentially a reflection of the end of the corn harvest, which eases pressure on values from that score.
(Conversely, wheat tends to outperform from mid-August to late October after its harvest winds down.)
Chicago soft red winter wheat for December fell 1.0% to $5.45 ¾ a bushel.
Kansas City hard red winter wheat for December did better, dipping a more modest 0.7% to $5.89 ½ a bushel, helped by talk that Brazil, a major importer of this variety, may turn to the US for supplies, depending on the extent of damage to the Argentine crop from excessive rains.
