Morning markets: grain, soybean prices rise as key data loom

The buyers keep coming.

There is cause for bears on grain and oilseed prices to think markets will turn their way.

Markets are broadly termed "overbought",

CHS Hedging, for example, said that "wheat markets are overbought and due for a correction."

Benson Quinn Commodities said that the "soybean market is overbought technically", and so on.

'Weakness in the basis'

Furthermore, basis, the gap between cash and futures markets is weakening, as higher prices encourage farmers to sell.

"Producer selling was well noted again on Thursday, keeping basis levels on edge domestically as well as on the front end at the Gulf," Benson Quinn Commodities said, speaking in particular of corn.

At Country Futures, Darrell Holaday, said that "we are continuing to see weakness in the US basis, a definite sign that funds have been the primary driver in the futures trade".

He fingered in particular the soybean basis, saying that if porcine epidemic diahorrea virus (PEDv) "has had the impact that most believe in overall hogs supplies, we will continue to see the soymeal basis weaken.

"There are estimates as high as 8m hogs will have been lost to PEDv for production from March through the fall. If true, then it would reduce the use of soymeal in the US approximately 560,000 tons or, to put another way, the equivalent of 23m bushels of soybeans".

Bearish sign undermined

But one encouraging technical sign for investors was that open interest, the number of live contracts, which has been on the wane in Chicago, rose again the last session not by much in the case of wheat, by only 550 contracts to 345,043 lots.

However, for soybeans, the increase was a more respectable 4,781 contracts to 664,432 lots, and for corn by 16,092 contracts to 1.31m.

That countered the negative of smaller open interest, which Mr Holaday said was "generally a bearish sign as it indicates we were not seeing a lot of new buying at the higher levels, rather shorts getting out".

And this on top of some positive chart signals, with May wheat futures, for instance, now firmly encamped above their 100-day moving average and half way to the 200-day line which Kansas City hard red winter wheat closed over this week for the first time in 13 months.

May corn futures this week secured their 200-day moving average for the first time in 14 months.

Strong exports

And this before getting to the fundamentals, of course, and the continued strong demand for US corn and soybeans in particular.

At the half way mark for 2013-14, the US has sold nearly 93% of corn exports the US Department of Agriculture is expecting for the whole season, with the figure for soybeans at 107%, meaning net cancellations are in order.

"The latest data shows US soybean export sales remain very strong and that there is a lack of significant cancellation by Chinese importers, something that is often observed as the South American crop comes online," Luke Mathews at Commonwealth Bank of Australia said.

Or the USDA may have to upgrade estimates for exports, which is not such an issue for corn, of which there is plenty around, although it does imply that prices will prove higher than was expected.

But for soybeans, of which the US is already looking at pipeline supplies, there are few spare supplies to juggle with, raising the potential for the US itself turning importer, or at least delaying orders until the early harvest in the South and giving buyers supplies fresh off the combine.

'Interesting task'

This issue is particularly sensitive now given that the USDA will on Monday reveal updated crop estimates, which looks like being a tricky juggling act for soybeans.

"The USDA has seemed to be pretty adamant that 150m bushels is the new pipeline minimum US ending stocks," Kim Rugel at Benson Quinn Commodities said.

"How they keep that number near unchanged with higher export demand will be an interesting task."

The consensus is actually for a downgrade of 9m bushels to 141m bushels in the estimate for soybean stocks at the close of 2013-14, with the corn stocks figure upgraded by 7m bushels to 1.488bn bushels, although such estimates are being revised after Thursday's export sales data.

'Demand has perked up'

For wheat, the export picture is not quite so rosy.

"Demand has perked up, but US involvement will continue to focus on routine business," Benson Quinn Commodities said.

And, indeed, the grain lagged on Friday, if still adding 0.5% to $6.49 a bushel in Chicago for May delivery, as of 09:30 UK time (03:30 Chicago time).

May soybeans were 1.0% higher at $14.52 a bushel, and May corn up 1.2% at $4.99 a bushel.

'Continue to support prices'

It helped, on the oilseeds side, that palm oil maintained its upswing, adding 0.9% to 2,893 ringgit a tonne in Kuala Lumpur, setting a fresh 17-month high of 2,896 ringgit a tonne earlier, gaining succour from the growing chance of an El Nino this year.

This weather typically brings dryness to South East Asia, including Indonesia and Malaysia, which are responsible for more than 80% of world production of the vegetable oil.

"Concerns of possible further production disruption caused by the El Nino phenomenon will continue to support prices," Phillip Futures said.

The sector faces data next week too, with a monthly report from the Malaysian Palm Oil Board expected to show Malaysian palm oil stocks falling some 13% to 1.31m tonnes last month, from January.

'Becomes a target'

Among soft commodities, cotton extended gains on talk that China is considering a fresh kind of import arrangement, a "processing quota", likely to boost buy-ins, in which the country already ranks top.

Decent US weekly export sales data, of 159,500 running bales of old crop and 48,200 running bales for 2014-15, plus actual exports at a marketing year high of 363,800 running bales, helped too.

CBA's Luke Mathews noted that "previous spikes for the spot contract over the past 12 months have seen values lift to 93-94 cents a pound, so this now becomes a target for the current rally. 

"However, we caution that each of these previous spikes was followed by a retreat to 80-83 cents a pound."

The May contract gained 0.9% to 92.46 cents a pound.

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