(Agrimoney) – Has soymeal’s rally been dealt a fatal blow?
All eyes in grain markets were, again, on the feed ingredient, which has been a major prop to futures in the whole grain market since mid-September.
But there have been growing cautions since the middle of last week that the rally was about to founder.
Thus far, they have proved wide of the mark. But a late slump in the key December futures contract to close at $372.70 a short ton, did raise cause for alarm.
‘Key support’
For a start, on absolute value, it took the contract back below the $380-a-short-ton point viewed as key, from a technical perspective, and at which the lot closed on Thursday, at dead one $380.00 a short ton.
“Key support for December soymeal is $380 a short ton. Consecutive closed below that level would be negative,” said Darrell Holaday at Kansas-based broker Country Futures.
The December contract looked to be testing a relative pricing point too, in shrinking its premium over the January lot, which ended down 2.8% at $356.40 a short ton.
It is the December-to-January spread “we watch to tell us if physical volumes are filling pipelines”, Mr Roach said.
(The rally in soymeal has been attributed to unexpectedly weak pipelines, after a slow US soybean harvest, after a 2013-14 season which ended with historically tight supplies of the oilseed, at a time of US logistical hiccups, and strong demand from importers for the feed ingredient too.)
‘Still scrambling’
Still, soymeal at least remained above some other key chart points, such as the 200-day moving average for the December contract at $360.40 a short ton.
And not all other signals were red either, with Mr Hoalday noting that, while there is some talk that the US cash market for meal is weakening, “we are not seeing any significant move in the actual basis… to confirm a change”.
Richard Feltes at RJ O’Brien said that the Chicago broker’s intelligence suggested that soybean crushers “have the beans, while the cash meal market says end users are still scrambling”.
Softer soybeans
Whatever, the weakness in soymeal fed through into weakness in soybeans themselves, which ended down 1.7% at $10.18 ¾ a bushel for November delivery.
There had been some caution earlier on that, with hedge funds now net long on Chicago soybean futures and options again, their willingness to close further short positions could be limited.
And certainly even some more positive price signals, eg US export data, met with a lukewarm response.
Soybean exports for last week came in at a large 2.77m tonnes, up from 2.26m tonnes the week before, and 2.25m tonnes in the same week of 2013.
Ideas of decent progress in the US harvest, expected to show up in later at 81% complete, in theory a negative for prices, are mitigated by the extent of the crop now completed.
In Brazil, decent rains, also a negative for prices in boosting soil moisture levels for seedlings, are mitigated a little by the delay in planting they will mean.
Corn dented
For corn, which has been supported by rival row crop soybeans of late, and thus ultimately by soymeal, Monday brought a negative session too.
Chicago’s December contract ended down 0.9% at $3.73 ½ a bushel, holding – just – above its 100-day moving average.
As an extra negative for prices, US corn exports last week were not so encouraging, at 425,856 tonnes, down from 733,152 tonnes the week before and nearly 800,000 tonnes in the same week of 2013.
The US harvest is seen as showing up in USDA data later at 60% complete, up 14 points week on week, but behind the average of 75%.
Corn and soybean prices are also finding a negative from the increasing proximity of the USDA’s monthly Wasde report, next Monday, which is widely expected to lift further estimates for both domestic corn and soybean yields.
As to what brokers are actually expecting, FCStone is due later today to unveil pre-Wasde estimates, with some saying figures are due from Informa Economics too.
Wheat bucks the trend
Chicago wheat fared better, adding 1.1% to $5.38 ¼ a bushel for December delivery, a trend seen fuelled in part by the unwinding of short wheat-long corn spreads.
However, as has often happened in the last few weeks, Chicago took a bit of notice from Paris prices, which closed up 0.7% at E173.50 a tonne for January delivery.
Paris values in turn had the boost from weekend victory by French wheat in a Gasc tender, besides by some weakening in the euro too, down 0.3% against the dollar, making eurozone exports, such as grains, that much more competitive.
Prospects for Russian, and Ukrainian, wheat crops in 2015 continue to raise some concern, as highlighted in a Macquarie report.
‘Active sellers’
Among soft commodities, the stronger dollar – and conversely a weaker Brazilian real, down 0.9% against the greenback – presented a negative backdrop for many.
A weaker real lowers the value, in dollar terms, of assets such as sugar and coffee in which Brazil is a major force.
And, indeed, arabica coffee for December closed down 1.1% at 185.85 cents a pound in New York, softened also by expectations of strong rains for Brazil’s parched coffee belt.
Somar meteorologists estimate that up to 170mm of rain could fall in parts of Minas Geraid, Brazil’s top coffee state, over the next two weeks, as the rainy season kicks in in earnest, if a little late.
“Reports indicate that Brazil producers have been active sellers as the rains increase,” Jack Scoville at Price Futures Group noted.
Battle of the forecasters
Still, offering some hope for bulls was a reluctance by the December contract to fall below its 200-day moving average, at 185.73 cents a pound, which it has not closed below for nine months.
And Commerzbank detected some doubt as to ideas of strong rains for Minas Gerais.
“Some weather forecasts predict significant relief, others already expect to see hot weather returning in the next few days,” the bank said.
“Given this high level of uncertainty, the volatility of coffee prices is likely to continue.”
Brazil vs Thailand
Robusta coffee did better, adding 1.2% to $2,073 a tonne in London for January delivery, amid growing ideas of dryness in Indonesia and, indeed, Vietnam, the top producer of the bean.
“Instead of 900mm+ rain over the past 180 days, Vietnam received under 600mm,” said analyst Mark Nucera, who has a “buy” recommendation out on robusta coffee.
But, back in New York, raw sugar for March fell 0.7% to 15.93 cents a pound, pressed by the weaker real, and the boost to 2015 cane production inherent in Brazil’s forthcoming rains, due to hit the main Centre South cane producing region (which overlaps with the coffee belt).
Besides, there is talk of Brazilian producers, many of which stashed sugar away in expectation of a late-2014 price revival, are trying to get supplies away at bargain prices.
“Allegedly, Brazilian producers are taking advantage of the weak real to lure Chinese buyers – demand in China is currently buoyant – away from their rivals, particularly in Thailand, with low dollar prices,” Commerzbank said
