It isn't just in corn
that Chinese buying is offering some surprise to markets.
In cotton too,
the country's appetite is giving bulls some hope, with Chinese imports for last
month soaring 146% year on year to 138,100 tonnes, according to the China
This after a rise in purchases too in January, albeit of a
more modest 20% year on year to 114,924 tonnes.
The increases came even as the prospect was looming of the
restart (last week) of auctions from the government's huge supplies, at a rate
of 30,000 tonnes a day.
But the rise in imports may not be quite the paradox it
first appears, given that the cotton China has been importing seems largely of
(The US was the top origin in January, at 50,696 tonnes. No
breakdown for February is yet available.)
Rumour has it that the quality of cotton being released from
government stocks is not high, and requires blending with better-grade fibre for
resulting cloth to pass muster.
'Additional layer of
The question now is whether the rules of the game have
shifted with the apparent decline in enthusiasm for China's cotton auctions,
after a strong start.
On Tuesday, just 76% of cotton offered was sold, at an
average price of 14,848 yuan a tonne.
That compares with figures of 100%, and 15,476 yuan a tonne,
respectively at the season's first auction, on March 6.
"The declining sale rates, should they continue, would add
an additional layer of complexity to the task of winding the Chinese stockpile
down," said Tobin Gorey at Commonwealth Bank of Australia.
New York vs Zhengzhou
The decline could also mean yet further imports are needed to
make-up mills' supplies – unless the reduced appetite for government supplies is
indicative of some weakness in overall demand.
Whatever, the dynamics look negative for Chinese prices,
with May futures on China's Zhengzhou exchange falling 0.7% to 15,275 yuan a
tonne overnight, the weakest close in nearly two months.
In New York, investors were more upbeat, with May futures
adding 0.9% to 77.85 cents a pound as of 10:10 UK time (05:10 Chicago time), polishing
the contract's technical appeal too.
Besides taking the lot back above its 10-day moving average,
the revival in prices over the last couple of sessions has boosted ideas that
an uptrend in futures in particular since the turn of the year remains intact.
As for corn -
futures in which rose for the first time in seven sessions on Tuesday, on talk
that China had bought anything from 100,000-500,000+ tonnes of the grain from the
US – prices maintained their upswing.
Chicago's May contract added 0.5% to $3.71 ½ a bushel,
distancing itself further from a two-month low of $3.60 a bushel reached early
in the last session.
The talk of Chinese buying (which is said also to have
included barley purchases) is being
treated as credible, given the time of year, with the 2017 crop not yet even
planted, and questions over the quality of much of the grain in store in the country.
Terry Reilly at Futures International said: "The forward
buying may have been in response to fears domestic China cash corn prices will
further appreciate into the summer feeding season, and the large corn stocks
sitting in Chinese inventories are of poor quality".
Such dynamics leave "compound feed producers little option
but to buy higher quality imported corn".
'Spot of luck'
Commonwealth Bank of Australia's Tobin Gorey also flagged
that competition in corn exports remained diminished, for now, form the dent to
Brazil's supplies from the country's dismal safrinha harvest last year.
"The timing of those big [Chinese] orders is a spot of luck
for US exporters," he said.
"South America still doesn't have much available for export
at this point," with this year's safrinha crop, the primary source of Brazilian
corn exports, still in the latter stages of being seeded.
'Confidence has been
The same is not true, of course, for soybeans, in which Brazil's exports are ramping up as the harvest
Indeed, demand for US soybeans "has turned quiet with China
crush margins negative and China seeking cheaper South American beans anyway,"
said Benson Quinn Commodities.
Futures International's Terry Reilly flagged the "rapid
shift of soybean exports from the US to South America".
CBA's Tobin Gorey said that "Brazilian soybean prices have started
to develop more notable discounts to their US counterparts", adding that "investors'
confidence has been zapped by South America's huge production potentials and
good harvest weather".
Corn vs soybeans
Still, Chicago soybean futures for May rose 0.7% to $10.06 ¼
a bushel in early deals – signally, recovering the $10.00-a-bushel mark which
they closed below in the last session for the first time in nearly four months.
The oilseed's fortunes are linked particularly at this time
of year to those in corn (and cotton) rival crops in spring sowings programmes,
and the grain's outperformance in the last session reduced to 2.59 the much-watched
ratio between November soybean and December corn futures.
While still in territory firmly encouraging plantings of the
oilseed, rather than the grain, Richard Feltes flagged the need for incentive "to
persist into May, given the well-known tendency for US corn area to exceed
intentions, if early spring planting conditions are favourable".
(Corn has a slightly earlier planting window than soybeans,
so area is particularly dependent on early spring conditions.)
Soybeans' fate later may depend on US crush data from
industry group Nopa expected to come in at 146.09m bushels for last month, in
line with the 146.18m bushels reported in February last year, but behind the 160.6m
bushels seen in January 2017.
'Damage could occur'
also made a strong start in Chicago, adding 1.4% to $4.36 ½ a bushel,
encouraged by profit-taking on short positions which have proven winning bets for
the last couple of weeks, with May futures in the last session hitting their
fourth-lowest close of 2017.
While rain relief is said by meteorologists to be on the way
for the dry US southern Plains, "the event remains highly uncertain, as does
its moisture load and distribution," Mr Gorey said.
Futures International's Terry Reilly, while underling the expectation
of rains from March 22-24 that "could cover much of hard red winter wheat country",
also advised investors to "look for above normal temperatures up until this
event, facilitating net drying".
Furthermore, he flagged that a "cold snap across the eastern
US worried some traders that damage could occur to some of the soft red winter wheat
As an extra help to prices too, Egypt's Gasc tendered for
wheat, surprising many investors, who believed the authority's appetite may
have been sated by its huge buying spree last month.
This time, Black Sea origins are not seen as the shoe-in
they have been for much of the season.
"French origins have a serious chance, considering the
current competitiveness of our prices compared to Black Sea" alternatives,
Jordan tendered for 100,000 tonnes of wheat too.