There still aren't enough soybeans in the world, even after the upgrades to last week to
Brazil's record crop.
At least, that was what futures markets appeared to be
saying in early deals on Monday, when soybean futures posted small gains, while
those in corn, the main oilseed's
main rival in the US spring sowings programme, in decline.
The new crop November soybean futures: December corn futures
ratio rose back above 2.60 in early deals, territory it has not been in for a
couple of months, and well into the area offering growers extra financial incentive
to plant the oilseed over the grain.
(Some people put the neutral point at below 2.50, with
others saying 2.25, and others even lower ratios. But 2.60 is universally
agreed as supportive of soybean plantings.)
'A real surprise'
And this after last week's upgrades to the Brazilian crop,
by both the country's own Conab bureau and the US Department of Agriculture,
which lifted its forecast by more than investors had expected.
"The big increase in Brazilian production up to 108m tonnes
was a real surprise to the market," said Joe Lardy at CHS Hedging.
"Many private forecasters were in that range but since the
USDA was previously at 104m tonnes, most thought the adjustment would be more
"A bigger South American crop will need a home at the
expense of US business, plus the difficulty in getting product shipped off the
Pacific North West has been a real challenge, and has cut the US export programme."
Still, soybeans had a couple of factors in their favour, one
being a firm start by palm oil, which
stood up 0.6% at 2,788 ringgit a tonne as of the midday break in Kuala Lumpur,
helping rival vegetable oil soyoil
That said, Chicago soyoil for May lost early gains to stand
unchanged at 32.68 cents a pound as of 09:45 UK time (04:45 Chicago time).
Still, the contract is shying away from giving back the last
of its gains made two weeks ago on rumours (denied, but still talked about) that
President Donald Trump is to enact reforms which would boost demand for US
biodiesel, as made largely from soyoil.
It is also a relative help for soybean prices that there
appear so far no obvious hindrances to Midwest sowings, when the planting
season opens up, (although the weather could of course yet provide surprises).
Soil moisture levels look good in most parts of the Midwest
bar Missouri, which is scheduled for rain this week. And, given that corn has a
slightly earlier sowing window than soybeans, the grain sees a particular
benefit from a strong early start to seedings.
Key chart points
And then there are technical factors, which are much in play
at the moment ahead of the spring sowings period which will put supply and
demand fundamentals back on the front burner.
Soybean futures for May, after falling below their 200-day
moving average at $10.20 a bushel or so last week, appeared reluctant in the last
session to prepare for a test of the $10-a-bushel mark, from which the contract
bounced in January.
Tobin Gorey at Commonwealth Bank of Australia said: "We
expect buyers to eventually step back in.
The $10-a-bushel mark has a tendency of attracting support."
The May contract
stood at $10.07 a bushel in early deals, up 0.1% on the day.
That small rise was more than May corn futures could manage, shedding 0.4% to $3.62 ¾ a bushel, not
finding yet a support point after falling below their 100-day moving average in
the last session.
"The market has slipped through both its 100-day and 200-day
moving averages, so we can see that technical weakness persisting in early
trade this week," CBA's Tobin Gorey said.
Still, "buyers have a history of stepping back in around the
This when demand factors in the US are being undermined by ideas
of the potential spread of bird flu, a factor which Terry Reilly at Futures
International said had "added to the bearish undertone" in the market.
"Expect more cases to be reported this spring amid the mild
northern hemisphere winter," he added.
'Rally should be sold'
Regulatory data released late on Friday showing that as of
Tuesday last week hedge funds had sold down only a small part of their net long
position in Chicago corn futures and options was also not viewed as helpful.
The net long was cut by 2,054 lots to 80,081 contracts, meaning
plenty of potential ammunition for further selling to come
While noting that funds had "remained on the sell side the
balance of" last week, Benson Quinn Commodities said it "would lean towards the
market having to move lower before finding lasting support.
"A corrective rally should be sold."
Rains on the Plains
It was also not helpful to corn that rival grain wheat was on poor form shedding 0.7% to
$4.37 ¼ a bushel, and so improving its own relative credentials for inspiring
Again, hedge funds were viewed as having scope for selling,
after net sales of 7,714 contracts in the latest week to take their net short
to 63,180 contracts, well short of the 151,000-lot high seen in October.
And rains are taking some of the sting out of concerns over dryness
in the US Plains hard red winter wheat country.
"Scattered rain and snow showers will push into eastern
Nebraska, central and eastern Kansas, central and eastern Oklahoma, and
northeast Texas this week," if not with huge amounts, weather service MDA said.
"Showers in eastern areas will improve moisture a bit," although
dryness may "build further" in central and western areas.
CBA's Tobin Gorey said that an "issue, mostly for Kansas, is
that the worries about US hard red
winter wheat crop have not, so far, translated, into actual crop losses".
Certainly, futures in hard red winter wheat itself, as
traded in Kansas City, underperformed in early deals, shedding 1.1% to $4.50 ½ a
bushel for May.
'Planting delays are
Spring wheat, as
traded in Minneapolis, fared relatively strongly in shedding 0.6% to $5.35 ½ a
bushel, for May delivery.
But then precipitation in the northern Plains spring wheat
country are not so welcome for sowings prospects, in potentially speaking of
flooding, with snowmelt too, and delays to sowings.
Futures International's Terry Reilly noted that "the Red
River of the North Basin will see some more unwelcome rain and snow through
Spring wheat "planting delays this spring are inevitable
with the large snowpack across the Red River basin for high protein wheat".
In New York, cotton
futures for May fell by 0.3% to 77.07 cents a pound, despite a resolute
performance overnight by peers on China's Zhengzhou exchange.
There, May futures rose 0.3% to 15,525 yuan a tonne,
suggesting perhaps a decent start to the week for daily sales of cotton from
China's huge state stockpiles.
On the negative side for cotton futures was a further rise in
the hedge fund net long position, including options, of, 6,268 lot to a record
high of 106,034 contracts, creating the potential for selling ammunition on a
"We remain concerned that a yawning gap is developing
between futures prices and their underlying fundamentals," Mr Gorey said.
"The market might get a reality check later this month as
the US planting story shifts into focus."