PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 09:48 GMT, Friday, 21st Feb 2014, by
Morning markets: softs make firm start, but grains struggle

Some have attributed the renewed popularity of agricultural commodities this month in part to the poor start that shares made to the year, encouraging investors to seek alternatives.

Whatever, shares made a bit of comeback on Friday in Asian markets, with Sydney stocks rising by 0.5%, Hong Kong shares by 0.8% and Tokyo stocks by 2.9%.

European share markets opened firm too.

'Weaken tree structures'

But grains and oilseeds found headway tricky, even in Kuala Lumpur, where palm oil retreated from its 17-month high by 0.2% to 2,749 ringgit a tonne as of 09:45 UK time (03:45 Chicago time), on end-of-week profit taking.

Indeed, the fall defied some further bullish talk on the dent to production in Indonesia and Malaysia, responsible for some 80% of world production of the vegetable oil, from dry weather.

"Drought will weaken tree structures, resulting in lower production of fresh fruit bunches," Phillip Futures said, noting that Indonesia had kept its export tax at 10.5% despite the prospect of a hit to production, at a time of growing domestic demand for palm oil for making biodiesel.

The move was "likely implemented to match Malaysia's unchanged March export tax at 5%, to maintain export competitiveness", the broker said.

Meanwhile, Chinese January import data for palm oil appeared supportive too, in rising 17.8% to 556,523 tonnes year on year (with most of the increase in purchases from Malaysia).

'Crush margins are not good'

For soybeans, Chinese import data appeared decent too, at 5.91m tonnes, up 24% year on year with increases in purchases from Canada as well as the US.

Indeed, China's imports of Canadian soybeans, at 314,337 tonnes, exceeded those from Brazil, at 116,065 tonnes, although that dynamic will of course reverse as Brazil's harvest brings a surge of fresh supplies this month.

However, not all the news from China was so supportive, with the downside of huge imports is that it may mean a, temporary, surplus of supplies.

"Chinese port supplies are ample, crush margins are not good and the health of their economy remains in question," Brian Henry at Benson Quinn Commodities said, noting Thursday's soft reading to an HSBC purchasing manager' index for China.

Poultry hit

Certainly, price movements in China itself, the top soybean importer, on Friday did little to improve crush margins.

Prices of soybeans themselves nudged higher, by 0.1% to 4,712 yuan a tonne for May delivery, and by all of 2 yuan to 4,509 yuan a tonne for the better-traded September contract.

But May soymeal fell by 0.7% to 3,402 yuan a tonne, more than offsetting a 0.1% increase to 6,790 yuan a tonne in May soyoil.

In fact, there is talk of difficult times among Chinese poultry producers, with reports of losses of 10bn yuan ($1.65bn) in the industry, and growing by 1bn yuan a month, thanks to the dent to demand and prices from the H7N9 bird flu outbreak.

Guangdong, the top Chinese producing province, is seen as particularly badly hit, and there is talk of one large producer being brought to the verge of bankruptcy.

'Serious rainfall deficit problems'

Such considerations are balancing out the boost to soybeans from Brazil's adverse weather, which actually includes excessive rains in parts of Mato Grosso as well as the much-proclaimed dryness further east.

"As we move into this last portion of the critical growing season in South America, we continue to have serious rainfall [deficit] problems over much of central and east central Brazil, and increasingly excessive rainfall problems over south eastern Brazil, Paraguay and the northern third of Argentina," said.

"This pattern is likely to continue."

'Pattern does not change'

Indeed, next week, "rainfall amounts over Mato Grosso south eastward into Mato Grosso do Sul and into all of northern Paraguay and western Brazil will continue to run above normal," the weather service said, foreseeing rains of up to 5 inches.

But further east, "once again, most of Minas Gerais and Bahia stay completely dry for this seven day interval".

And the "pattern does not change much" for the first week of March either, weather models show.

The weather concerns have reached the extent that Oil World has, reportedly, cut its estimate for the Brazilian crop to 85m tonnes from 89.5m tonnes, and below the downgraded by AgRural to 87m tonnes which garnered attention early in the week.

Even so, that is still a large crop, and with soybeans already having priced in considerable risk premium of late, March soybeans eased 0.2% to $13.55 a bushel in Chicago, where May soybeans dropped the same to $13.44 a bushel.

Corn imports rise

Grains eased too, particularly oats, which slumped 1.6% on profit-taking to $4.61 a bushel for March delivery although this was just enough to keep a premium over corn, which for March eased 0.2% to $4.55 a bushel.

Chinese corn import data for January appeared pretty good, at 650,904 tonnes, up 64% year on year, and all by 9,000 tonnes coming from the US.

This, remember, in a month busy with concerns over rejections by China of US corn cargos containing a Syngenta GM variety unapproved by Beijing authorities.

Still it was tempting for investors to take profits, with prices among their highest in five months, and with ideas of large potential selling by US farmers still to come.

Data later

Furthermore, grain and oilseed markets face trial later by data, with the US Department of Agriculture to reveal further forecasts for domestic balance sheets in 2014-15.

(Thursday's sowing data was actually deemed largely bullish, showing lower-than-expected numbers for both corn and soybeans.)

And there are weekly export data to factor in too, particularly important when investors are seeking any evidence of Chinese cancellations of orders of US soybeans, in a switch to Brazil, and of a tail-off in grain exports which the USDA sees shrinking domestic stocks.

Weekly corn export sales are expected at 700,000-1.25m tonnes, and soybean export sales at 150,000-500,000 tonnes.

Chinese imports soar

Wheat export sales are seen at 400,000-700,000 tonnes.

"The export sales report will be a chance to see how higher prices have impacted export demand, though the real slow down may not show up for another week," Benson Quinn Commodities said.

Separately on the trade front, actually Chinese wheat imports were particularly strong, soaring 305% to 725,942 tonnes.

This included 256,935 tonnes of US wheat, although Australia was the biggest origin, at 327,076 tonnes.

Still, investors were happy to let Chicago wheat ease 0.3% to $6.14 a bushel for March, and by 0.4% to $6.11 a bushel for May, in the absence of any further ideas over the return of cold US weather expected next week.

"There isn't a particularly compelling story for either side of the wheat market right now," Benson Quinn said.

Softs harden

Soft commodities started stronger, with raw sugar for May up 1.0% at 16.49 cents a pound, helped by data showing a rise of 18.8% to 288,679 tonnes in Chinese imports, besides of course the lingering ideas of dryness in some areas of Brazil, as highlighted by above.

Arabica coffee revived too, soaring 1.5% to 172.00 cents a pound for May, if still remaining below the last session's intraday top which represented the highest price since October 2012.

And cotton started firm too, up 1.3% at 88.79 cents a pound.

This despite Chinese imports tumbling 36% last month to 292,485 tonnes, although a decline had been expected.

Evening markets: ag futures close mixed as fund buying wanes
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