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Morning markets: soy resolute, despite fog of China rumours

Grains and soybeans managed another positive start.

Will it lead to a positive finish this time?

There was not a huge amount of news around early on to suggest that a recovery based on fundamentals could be on the cards, although it has to be said that there is plenty of contradictory talk around China's soybean market.

Even the dryness in Russia, a concern with a history of sending wheat prices soaring at the time of year, appeared to be taking more of a back seat.

Brian Henry at Benson Quinn Commodities said that "dry regions of the Black Sea are hard to own right now," in terms of being a reason to buy wheat, and "may see some relief early next week".

Chinese auctions

Also on the radar were Egyptian purchases of domestic wheat which officials said have reached 2.75m tonnes, as the top wheat importing country progresses plans to take domestic purchases to 4.4m tonnes.

The extent of acquisitions at home of course undermines the need for buying abroad.

And then there were weekly Chinese auctions of soybeans and wheat, both of which showed reduced demand.

China sold only 5.2% of the 811,079 tonnes of wheat on offer from state reserves, below the 11.5% rate at last week's auction.

The price this time was 2,375 yuan a tonne for white wheat, down 7 yuan a tonne, although mixed wheat at least achieved a higher price, up 6 yuan a tonne at 2,391 yuan a tonne.

'Large Chinese soybean purchases'

For soybeans, the sale rate was far higher, at 80.9% of the 300,877 tonnes on offer.

But that was lower than the 92.1% last week, and the average price paid dropped too, by 39 yuan a tonne to 4,283 yuan a tonne.

And that is not the only negative news stemming from China on soybeans, with talk that banks are using the hostilities in Vietnam, witnessing strong anti-China protests, to tighten lending practices, and force importers to long-in unpriced soybeans to secure letters of credit.

"This could explain the catalyst for Monday's sudden sharp buying spree in July soybeans," one US broker said.

Subsidy shake-up

At Country Futures, Darrell Holaday also noted "a lot of discussion in the marketplace" over revisions to China's crop subsidy regime, and what they might mean for soybeans.

"In the past, China has supported the soybean price at a $21.00-a-bushel reserve price. This meant they would buy soybeans for their reserve if prices dipped below $21.00 a bushel," but had the downside of encouraging imports if world values went below that level.

"Although it is not completely clear how they will administer the new programme, they have made it clear that they will not be buying soybeans if the market is below $21.00," Mr Holaday said.

"Rather, they will send a direct payment to soybean producers."

The change "will create a different situation and could decrease imports in the next year somewhat".

'Rumours of large Chinese soybean purchases'

As for the reaction in China itself, that was a little mixed.

The best-traded January 2015 futures set a contract high of 4,658 yuan a tonne on the Dalian exchange before easing to settle at 4,610 yuan a tonne, a gain of 1.2%. But the September 2014 lot, the next best traded, dropped 0.5% to 4,530 yuan a tonne.

Indeed, just to add further uncertainty, there has been talk of improved dynamics in China, and even soy crushing margins returning just to positive territory.

Oil World flagged "rumours of large Chinese soybean purchases and reports about a pick-up in domestic soymeal demand".

In fact, the US Department of Agriculture on Tuesday reported the purchase of 111,000 tonnes of soybeans by Chinese importers, on an optional origin basis (ie maybe the US, but maybe not), and last Thursday the purchase of 120,000 tonnes of US supplies.

Corn-soybean swap

Sticking with the rumour mill, there is also talk that "a large swap position was liquidating long corn-short soybean positions Monday and Tuesday", one US broker noted.

"This could have accounted for the strong intra-commodity spreading over these days.

"Once the liquidation stopped there would be a vacuum under the market which is basically what we saw in the reversal on Tuesday."

'Wants to correct to the upside'

Whether that repeats itself today, well, soybeans for July were up 0.5% at $14.77 a bushel as of 09:40 UK time (03:40 Chicago time).

New crop November soybeans were up 0.8% at $12.41 a bushel.

That took the new crop soybean: corn ratio to a new high of 2.63:1, with December corn futures adding a modest 0.1% to $4.72 a bushel.

"It may takes days/weeks to get people excited in corn again," Mike Mawdlsey at Market 1 said, noting a turn negative in the grain's technical appeal, with the December contract now well below 100-day and 200-day moving averages, and investors comfortable about the US planting pace.

Wheat for July added 0.6% to $6.74 a bushel.

"It feels like the wheat market wants to correct to the upside, but can't find the substance to do so," said Benson Quinn Commodities Brian Henry.

Maybe this time it can.

Stronger softs

Among soft commodities, raw sugar started weaker, shedding 0.3% to 17.52 cents a pound in New York for July delivery, little helped by a decline in Chinese imports last month, by 24% to 272,616 tonnes.

Imports had been running ahead of year ago levels, and for the first four months of 2014 remain 28% higher, at 1.14m tonnes.

Cotton imports were 48% lower at 224,365 tonnes, although this had been heralded by the China Cotton Association earlier in the week, and was not so far below the pace previously in 2014.

Cotton for July gained 0.3% to 89.22 cents a pound.

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