PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 09:37 GMT, Friday, 28th Feb 2014, by Agrimoney.com
Morning markets: soybean market battles 'blow-off top' fears

Are soybean investors witnessing the down leg of a "blow-off top"?

Some investors seem to think so. That the market may indeed be in the grips of one of those chart patterns in which panic buying drives prices sharply higher, followed by a rapid head for the exits.

CHS Hedging reckoned that soybeans "saw a negative technical performance" in the last session - when they soared more than 3% to contract highs only to close lower - "with hints of a possible 'blow-off top' seen.

"Futures quickly retreated from the daily highs to settle modestly lower."

'Epic failure'

At Benson Quinn Commodities, Brian Henry also said that the "price action has the makings of a blow-off top" adding, in more simple terms, that the session's soybean rally had "culminated in what I view as an epic failure".

Nor were the omens too good for this session, at least from a technical perspective.

"Short-term technical studies got absolutely crushed and the weeklies are flattening out," Mr Henry said. Technical studies in the soymeal also flat to lower.

Furthermore, "funds will wrap up their month, which isn't supportive", with month ends associated with position closing and cash withdrawal, in contrast to fresh money injections associated with month beginnings.

'Irreversible damage'

Many fundamental signals are flashing red too.

OK, expectations for South American crops are on the wane.

The International Grains Council late on Thursday became the latest to downgrade its forecasts, cutting its estimate for the Argentine crop by 1.0m tonnes to 53.5m tonnes and for the Brazilian harvest by 2.3m tonnes to 80.0m tonnes, with a 600,000-tonne downgrade to the Paraguay crop too, to 8.6m tonnes.

In the top Brazilian soybean state of Mato Grosso, "recent heavy rains hindered progress and heightened concerns about the potential impact on yields, especially in light of humid conditions", the IGC said.

"Overly dry conditions in other areas of the country have intensified worries about yield potential and production prospects elsewhere. Drought damage to some fields is thought to be irreversible."

Coming in March?

But the continent still looks on for a decent harvest.

And, besides the prospect of ample South American supplies providing competition for US supplies, there is the question of who wants the oilseed, with investors remain twitchy about China, the top importing country.

The failure of Chinese cancellations of purchases of US soybeans to show up on rosters has been a major prop for prices, given that the US requires net import order cancellations in the second half of 2013-14 to prevent a void emerging in its balance sheet.

But can this last for long? As Tim Hannagan at Walsh Trading noted, it was in March last year that "China backed off with sharply lower shipments and new sales".

'Left trading rumours'

One trader noted fresh "rumours of Chinese bean order cancellations" although acknowledging that "there is nothing to confirm this" yet. 

"The market is left trading rumours until the next USDA announcement."

And soybean dynamics in China itself are not, talk has it, looking too positive for prices.

At Commonwealth Bank of Australia Luke Mathews noted that "despite the strong pace of US soybean export sales to China, there are reports that Chinese port storages are full and vessels cannot unload".

CHS Hedging flagged "market chatter" that soybean "unloading at a Chinese port has been suspended, a result of limited available storage capacity".

Chinese buyers, faced with "poor crush margins" are reputedly "rolling old crop to new crop", the broker said, flagging the "potential for Chinese cancellations".

Prices fall

While that was the rumour, Chinese prices did little to dispel it.

Dalian soybeans for September, the best traded contract, settled down 1.0% at 4,468 yuan a tonne, while September soymeal ended down 1.1% at 3,264 yuan a tonne.

The March soymeal contract hit 3,450 yuan a tonne its lowest in nearly four months, although it has to be said volumes in this contract are thin.

In Chicago, soybeans for May stood 0.4% lower at $13.86 a bushel, with May soymeal down 0.6% at $448.70 a short ton as of 09:30 UK time (03:30 Chicago time).

Elsewhere in the oilseeds complex, palm oil - supported by concerns over dryness in South East Asia, and which on Thursday added New Britain Palm Oil to those issuing supportive price comment - did better adding 0.6% to 2,795 ringgit a tonne.

Spreads unwound?

For grains, that at least meant no more pressure, as for much of the last session, from buy soybeans- sell grains spreading.

Indeed, was the opposite at work on Friday?

Corn managed to gain 0.1% to $4.55 a bushel for May, after in the last session failing to get much credit for solid weekly export sales of 840,800 tonnes old crop.

That took the total for 2013-14 to 36.1m tonnes meaning that the US needs to sell only 4.5m tonnes for the last half of the marketing year to meet US Department of Agriculture expectations.

'Rally may have run its course'

"The demand side of the balance sheet remains plenty healthy on all fronts," Benson Quinn Commodities said.

"Export sales continue to pop up at a good pace, animal populations are showing signs of growing and ethanol margins are very appealing.

"Unfortunately for the bulls, supplies are plenty adequate though not quite as burdensome as was once thought.

"Unless managed money is intent on adding to their newly-established long positions, which at this point seems unlikely, the rally in corn may have run its course for the time being."

CHS Hedging noted that US "cash markets were mainly steady/weaker as end-users seem to have extended coverage".

'Funds are cashing out'

At Market 1, Mike Mawdsley said that "news is still bullish but it appears we may have found a price that funds are cashing out".

For wheat, there hasn't even been much bullish news, with the Egyptian tender on Thursday underlining how US wheat has lost competitiveness against Russian supplies in particular.

"Russian wheat remains cheaply offered, in part because of the weakening local currency," CBA's Luke Mathews said, noting that the rouble has "declined to a record low, down 8.6% year to date".

Still, Chicago wheat for May bounced 0.5% to $5.92 a bushel, if only thanks to profit-taking, with hedge funds believed to be retaining a large net short position in the grain.

'Light showers this weekend'

There was some sign of end-of-month profit-taking hitting the softs market too, with raw sugar for May tumbling 2.2% to 17.68 cents a pound in New York.

Or is this a sign of a blow-off top as well?

"Weather forecasters suggest light showers this weekend" for central Brazil, where dryness has raised concerns over cane crops, besides over coffee trees too.

However, the rain will be "followed by renewed drying trend", Mr Mathews added, a prospect which "continues to result in worries over cane yields".

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