As if commodity investors didn't have enough to worry about
over China, the latest economic data did little to assuage concerns.
HSBC's preliminary purchasing managers' index for April
signalled contraction for a fourth month, with an index level of 48.3, below
the 50.0 neutral reading.
"Downside risks to growth are still evident as both new
export orders and employment contracted," said HSBC economist Qu Hongbin,
forecasting that Beijing would undertake stimulus measures to boost the
"We think more [stimulus] measures may be unveiled in the
coming months and the [central bank] will keep sufficient liquidity."
Still, for now, the weak index reading only added for agricultural
commodity investors to the downbeat picture which has got them particularly
concerned about soybeans.
There isn't just the potential for economic weakness to
undermine growth in demand for meat, and therefore for livestock feed, to
There is the talk that China will as early as next month begin
auctioning soybeans from state supplies, a month early than usual, adding extra
supplies to a market hardly in deficit.
Indeed, the talk of Chinese buyers continuing to default on
or switch deals continues at the forefront of investors' minds, especially
after two Marubeni shipments bound for China were switch to the US, whose tight
balance sheet is encouraging imports.
Of course, the Chinese default story is not just down to
crushers having overbooked soybean imports.
The oilseed has been used as a financing tool, with the
credit that buyers have been able to raise against cargos being used to raise temporary
cash for all kinds of purposes – a situation now unravelling.
One broker said that "this could help explain why earlier
this year China continued to purchase US soybeans even though there was a large
discount in Brazilian beans," with the US seen by lenders as a better credit
There is now talk is that Chinese banks have raised the
downpayment on letters of credit for soybean purchases from 10% to 30% or more,
'Tight US soybean
That said, the market retains support from the tightness of
US supplies, which are expected to end 2013-14 at their thinnest in 50 years, relative
to demand, on US Department of Agriculture estimates.
Indeed, the Chinese situation "does not solve the tight US
soybean situation," Kim Rugel at Benson Quinn Commodities said.
But investors appear "more comfortable that the situation is
loosening as imports look to work into the Gulf, upstream of the Mississippi
and possibly even into the Great Lakes if the ice ever melts".
Soybeans for July stood 0.7% lower at $14.61 3/4 a bushel,
as of 09:50 UK time (03:50 Chicago time), setting course for a fourth
successive negative session.
New crop November soybeans were 0.3% down at $12.12 1/2 a
bushel, dropping below their 20-day moving average, beneath which the contract
has not closed since early February.
What is negative for soybeans is not necessarily downbeat
for grain prices, with investors having already factored in lower Chinese
imports of corn, and with a splurge on
wheat imports earlier in the season
viewed as over.
Indeed, some saw short soybean-long corn spreading as a
major factor behind the grain's rally in the last session, for which the headline
reason was the slow pace of US plantings, 6% complete as of Sunday compared
with the typical rate of 14%.
Commentators Agrimoney.com has contacted or read from are universally
relaxed about the slow planting pace so far, although that does not mean
investors are not warranted in injecting some risk premium into prices, especially
when weather forecasts are downright contradictory.
Among the latest comments was from Vanessa Tan at Phillip
Futures, who said that "if plantings conditions in the Midwest remain favourable,
progress could be spurred and be reflected during the next crop progress report".
At Commonwealth Bank of Australia, Luke Mathews said: "It is
far too early in the season to be overly worried about US row crop planting
Corn for July was flat at $5.02 a bushel, although progress
later may depend too on weekly US ethanol production data.
The last batch showed a jump in output to 939,000 barrels a
day, and declining inventories too.
Ukraine tensions rise
It was left to wheat to prove the strongest of Chicago's big
three, although of course only after a 3% slump on Monday.
The revival is in tune with the situation in Ukraine, where
tensions are growing again after two men, including local politician Vladimir
Rybak, were found dead - after being, according
to President Oleksandr Turchynov, "brutally tortured".
The suspicion is that the deaths were the work of
"The terrorists who effectively took the whole Donetsk
region hostage have now gone too far," Mr Turchynov said.
The US has warned Moscow that "absence of measurable
progress on implementing [last week's] Geneva agreement will result in
increased sanctions on Russia".
Futures in wheat, of which the Black Sea region is a key
source of exports, have proven themselves a barometer of Ukraine tensions.
Furthermore, there is the damage to the US southern Plains
hard red winter wheat crop from drought and late frost to factor in.
Oklahoma State University academics added a bit more colour
to how the state's crop is being affected, revealing significant damage, of
more than 50%, in some of its plots, but little in others.
"While it is fairly easy to determine the extent of injury
on individual fields, the hit or miss nature of freeze injury this year makes
it difficult to estimate the total impact on the Oklahoma wheat crop as a whole,"
Still, university grains extension specialist Jeff Edwards
added that "the drought has severely limited resilience in our crop and we are
entering late April, so I do not anticipate there will be much of a recovery or
rebound in fields that were severely damaged".
Hard red winter wheat for July was 0.1% higher at $7.47 3/4
a bushel, while Chicago soft red winter wheat for July, the world benchmark, was
0.1% up at $6.80 1/4 a bushel.
Among soft commodities, one key question was whether arabica coffee could maintain its
upswing, after a 7% jump in the last session following a Volcafe downgrade to the
drought-hit Brazilian crop.
"The market reacted so strongly due to the lack of current
market moving news and uncertainty over the damage done to the coffee crop due
to hot conditions," Vanessa Tan at Phillip Futures said.
"Everyone was waiting for further evidence that would
quantify the damage."
She added: "We expect
arabica coffee to continue trending upwards on the supportive backdrop of
reduced coffee output for Brazil's 2014-15 crop."
Indeed, arabica coffee for July added 1.6% to 216.75 cents a
pound, earlier hitting a fresh two-year high of 217.40 cents a pound.
But cotton eased
back 0.3% to 92.96 cents a pound for July delivery, despite fears for the US
crop, of which drought-hit Texas is the top contributor.
"Worries continue to persist about West Texas cotton
production prospects given ongoing drought conditions," CBA's Luke Mathews
Still, Chinese economic concerns are hardly positive for the
market. China is the top producer, consumer and importer of the fibre.
In fact, customs data showed Chinese cotton imports falling
58% last month to 222,100 tonnes, an accelerating rate of decline, with overall
buy-ins so far in 2014 down 44% at 760,637 tonnes.