build on their 3% gains of the last session?
The answer was yes, in early deals on Wednesday at least,
boosted by what Richard Feltes at RJ O'Brien termed a "perfect storm of bullish
These showed further squeezes on both the supply and demand
sides of the market, justifying higher prices - although there is cause to
think that headway might run into turbulence if it goes too much higher.
OK, Oil World's downgrade of 2m tonnes in its estimate to
50m tonnes in its estimate for Argentina's soybean crop was not too much of a
game changer, in already being reflected by some other commentators, and offset
a touch by a 500,000-tonne upgrade to its estimate for Brazil too.
But the process of actually getting the soybeans from South
America, and in particular Brazil which has already harvested a notable portion
of its crop, is attracting increasing concern.
"Rains have delayed harvest and are now delaying loading of
vessels in Brazil," Benson Quinn Commodities said.
"Vessels line-ups are estimated out 30-40 days, with talk
that upwards of 11m tonnes of capacity is waiting to load beans," with some
soymeal and corn volumes included in that estimate too.
'Pipelines run dry'
And this when demand remains firm.
China - which returned from holiday with a two-cargo
purchase of US soybeans, when the thinking was that it would turn to South
America for its needs – does not represent the only buyer in town.
Benson Quinn flagged higher cash basis bids from exporters
wanting to meet other country's needs too "as pipelines run dry in US".
Weekly US export inspections, at 40.4m bushels, revealed on
Monday, were up nearly 10m bushels week on week, and beat market expectations.
Meanwhile, in the US itself, the pace of crushing remains "robust",
Mr Feltes said.
"The take home point is that torrid September-to-February US
soybean usage pace of approximately 2.263bn bushels must slow to 823m bushels
during March to August," Mr Feltes said.
OK, usage usually does decline, as importers take their
trade to South America as harvest refills silos there.
But the decline of 63% in usage during March to August this
year (and the second half of the 2012-13 marketing year) implied by these
calculations is well below the 37% decline in the second half of 2011-12.
Furthermore, there are technical reasons to be bullish on
soybeans too, with the March contract now passed back above its 10-, 20-, 50
and 100-day moving averages.
And Friday sees the expiry of March options which have
plenty of coverage around $14.80-15.00 a bushel, potentially acting as a draw
However, whether the contract can go too much higher… Mr
Feltes flagged that the $15-a-bushel area "has proven to be strong resistance
in both December and January" to upward movement.
The contract stood 0.7% higher at $14.81 ¼ a bushel at 09:00
UK time (03:00 Chicago time).
Another uncertainty for soybeans and all major crops grown
in the US is the prospect of the US Department of Agriculture's annual Outlook forum
starting on Thursday, at which it gives its first proper glimpse at its
estimates for 2013-14 balance sheets.
While expectations are that soybean acreage will not see a
huge increase in the USDA numbers, corn may well see a further increase from
last year's levels which were the highest since the 1930s.
(Fertilizer group CF Industries overnight pegged US corn
area at 97m acres, flat year on year.)
With talk too of an initial USDA yield estimate above 160
bushels per acre, compared with the 123 bushels per acre achieved last year,
there is obviously potential for a huge rise in production.
Indeed, trade talk is of a 2bn-bushel US corn carryout at
the close of 2013-14, three times the tight levels of the current season.
And this when one of the most bearish commentators on
Argentina's crop, Michael Cordonnier, has raised his estimate for that harvest,
by 1.5m tonnes to 24m tonnes, citing better rains in the north of the country.
Meanwhile, US exports, as measured by cargo inspections,
were poor in the latest week, at 9.5m bushels, down from 14.8m bushels a week
And there is significant rain and snowfall forecast across
much of the Plains and the Midwest, easing drought fears, for winter wheat as well as spring crops.
Still, there is some hope for corn bulls, with higher US
crude prices supporting a trend of reopening US ethanol plants, mothballed last
year as prices of the grain peaked.
"The implication for ethanol is that positive plant margins
are likely to continue near term, which may need a ramp down in US corn used
for ethanol," Mr Feltes said.
Furthermore, technically, "there is significant open
interest at the $7.00 –a-bushel strike in the March options that are expiring
this Friday, which is suggestive that the market should show a tendency to
gravitate towards that level", Benson Quinn Commodities said.
Chicago's March contract stood unchanged at $6.95 ¼ a
And wheat did
even better, boosted by the potential for a US win in the latest tender by
Gasc, the state grain authority in Egypt, the top wheat importer.
Gasc after the close of markets on Tuesday unveiled a tender
for April 10-20 shipment, and should US grain win, it would go a way to changing
an observation that, in Benson Quinn's
words "rumours of US wheat exports abound, but confirmation is lacking".
In fact, US wheat was a little out of the running in the
latest Iraqi tender, at $399 a tonne, a touch above the $390-395 a tonne at which
Australian grain was offered, but geography is seen as tilting the odds when it
comes to supplying Egypt.
'Intense drought conditions'
As an extra support to prices, there are ideas that while
recent US rains are welcome, more may be needed.
US data "continues to show intense drought conditions over
much of the hard red winter wheat growing area", Mark Welch at Texas A&M
"Rainfall over the last 30 days has missed most of this
Chicago wheat for March stood 0.2% higher at $7.34 a bushel.
Among soft commodities, the revival in New York raw sugar futures from a two-year low stalled,
after two days, despite continued ideas that lower prices are attracting
"The inverse at the front end of the curve possibly
indicates tighter-than-expected near‑term supplies and robust demand," Luke
Mathews at Commonwealth Bank of Australia said.
He also flagged University of Sao Paulo calculations that the
low level of international prices means sugar producers in Brazil, the top
exporting country, are better selling in the domestic market rather than for
Raw sugar for March eased 0.4% to 18.15 cents a pound.