(Agrimoney) – Two adages beloved of Chicago grain traders collided.
One idea is that market reversals come in threes – ie last for three sessions.
Meaning that, for instance, the rally in soyoil futures kicked off on Friday by a proposals for a more generous US biodiesel blending mandate should last through to this session.
‘Soyoil is overbought’
However, traders also believe that a strong trend on the first session of the week is reversed in the second – bringing a so-called Turnaround Tuesday.
And it was pretty evenly balanced in early deals in soyoil, at least, which rose, but only by 0.1% to 34.54 cents a pound in Chicago for July delivery as of 09:50 UK time (03:50 Chicago time).
This represented quite a slowdown, following the strongest two-day gain in soyoil futures, of 7.6%, in six years.
“Many believe soyoil is overbought, including us,” said Terry Reilly at Chicago-based broker Futures International, noting that there was “little movement in cash soyoil [prices] late Friday/early Saturday” despite the soaring futures.
Soyoil vs soymeal
And, as so often happens, as soyoil struggled, soymeal outperformed, rising for July delivery by 0.9% to $299.30 a short ton, and recovering a little from its weakest close since December 2011, on a spot contract basis.
The two soybean processing products are often hedged against eachother, with investors in essence taking a stand on how much, in value terms, each will account for of the total soybean crush.
That said, there are doubts as to whether soymeal can continue its recovery against soyoil, with some seeing a further correction due from relative price levels which were historically elevated in soymeal’s favour.
“The reality is that since January, the soymeal value made up as much as 75% of the crush value and oil as low as 25%,” said Darrell Holaday at Kansas-based Country Futures.
“That was a record value percentage for each. That has been changing and needed to change more substantially. That is driving the soybean complex.
“Look for the crush percentage values to head toward 63% meal value and 37% soyoil value.”
Sowings hold-ups
Staying with the oilseeds complex, soybeans for July gained 1.0% to $9.35 a bushel, receiving support from data showing that US sowing of the crop had reached 71% as of Sunday.
While above the typical 70% by then, it was a lower figure than analysts had expected, and deemed by Richard Feltes at RJ O’Brien “slightly supportive” to prices.
The overall figure highlighted large delays in sowings in Kansas, Missouri and Nebraska, which raised worries over whether plantings will get finished in these states in time.
‘Hit hard by frost’
Meanwhile, canola for November edged Can$0.20 higher to Can$481.50 a tonne in Winnipeg, adding to gains in the last session on a weekend frost in parts of the Prairies.
“The Canadian canola crop, in Manitoba, was hit hard by frost over the weekend,” CHS Hedging said.
“Many fields will need to be replanted.”
That said, there is time for reseeding, although later-seeded crop is more vulnerable to flowering in summer heat, and suffering reduced yield levels.
Palm up
Canola, as an oil-heavy rather than meal-heavy oilseed, had also gained support from the rise in soyoil, bringing gains of 1.7% on Friday as well as 3.3% in the last session.
The stagnant soyoil performance this session thus had a dampening effect on the canola market too.
However, palm oil for August fared better, and gained 2.1% to 2,342 ringgit a tonne in Kuala Lumpur, earlier hitting a three-month high for a benchmark contract of 2,347 ringgit a tonne.
The US biodiesel mandate is not the only factor on the minds of vegetable oils investors, with the prospect too of data next week from the Malaysian Palm Oil Board on Malaysian stocks and production of palm oil.
CIMB forecast Malaysia’s palm inventories dropping 6% month on month to 2.07m tonnes, with output up 4.3% at 1.77m tonnes failing to offset in full a drain from higher exports.
Corn gains
Grains started higher too, with corn for July up 0.8% at $3.55 a bushel, helped by the same waning of the US mandate proposals which have questioned whether soyoil can extend its rally.
The proposals suggested a less generous blending target for ethanol, made in the US mainly from corn.
Furthermore, the US Department of Agriculture’s weekly crop progress report overnight failed to show the improvement in the condition of US corn that investors had expected.
The proportion rated “good” or “excellent” stayed at 74%, a high figure, but actually lower year on year.
Declines in crop condition in the likes of Missouri, Kentucky and North Dakota over the past week balanced out improvements in Michigan and Nebraska.
Wheat condition eases
Winter wheat condition, meanwhile, eased by 1 point to 44% rated good or excellent.
This is actually the kind of move that might be expected given that harvest is approaching, and the crop is getting long in the ear.
Still, there were notable declines in condition in both hard red winter wheat states, such as Colorado and Texas, besides Illinois, in soft red winter wheat country.
Chicago soft red winter wheat for July gained 0.7% to $4.97 ¼ a bushel, while Kansas City-traded hard red winter wheat for July was 0.8% higher at $5.18 ½ a bushel.
Russian export surge?
One negative for wheat markets is talk of a surge in Russian exports of the grain before a revised export tax kicks in next month.
According to Rusagrotrans, which transports grains by rail, Russian shipments for May and June could total 1.6m tonnes, some 14 percent more than previously expected.
On a less negative note, at Commonwealth Bank of Australia, Tobin Gorey reminded of the large net short positions that hedge funds already have in Chicago wheat futures and options.
“The other key fact is that the investors have already sold lots of futures anticipating [a] heavyish supply context,” he said.
“Now the trade will need to sell even more if prices are to fall further and allow investors to buy back their shorts.”
‘Well behind schedule’
Among soft commodities, cotton for July gained 0.3% to 63.91 cents a pound, helped by US data overnight showing a continued lag in US sowings of the fibre.
At 61% complete as of Sunday, they were up 14 points week on week, but behind the average of 78%.
“Cotton planting on the US’s soggy southern Plains remains well behind schedule,” Mr Gorey said.
“Farmers in Texas, for example, have planted just under half of the intended area this season – normally that is closer to three‑quarters by now.”
Still, weather forecasters “expect a drier period on the southern Plains over the next week that will, eventually, support accelerated planting”.
