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Morning markets: soybean prices gain, lifted by firm demand

Corn may have won the battle, but soybeans are winning the war.

Sure, corn futures may have emerged from last week's slew of US Department of Agriculture data with the most bullish revisions.

The USDA downgraded its estimate for domestic stocks of the grain at the close of 2013-14 to 1.63bn bushels, 230m bushels below expectations.

But after posting a 5% rebound on the day, the grain has failed to hold upward momentum, and extended its gentle return to earth on Thursday.

'Show me'

Soybeans, however - for which the USDA data was deemed neutral, and showed little reaction on the day - has started to power ahead, setting course early on Thursday for a sixth successive positive finish.

In part, that is down to a change of investor attitude towards the prospect of China, the top soybean importer, cancelling orders of US crop and replacing them with South American supplies - given large expectations for the Brazilian crop, of which early harvesting has begun with good results.

"The trade seems to shifting their expectations that China cancellation of US soybean purchases were inevitable to one of 'show me before I believe it'," said Kim Rugel at Benson Quinn Commodities.

Although the premium of US export offers to Brazilian ones is "widening, China is also taking a 'show me' stance to exports and seems to be waiting for Brazil to prove it can execute before making any origin shifts".

'Record pace'

Furthermore, Chinese orders of US soybeans for 2014-15 (the latest revealed on Wednesday) have set a "record pace, as demand growth for soybean imports has them starting next marketing year buying well in advance of US spring planting".

It helped bulls' case that futures on China's Dalian exchange rose overnight by 0.5% to settle at 4,667 yuan a tonne, for May delivery.

That took gains so far in 2014 above 5%.

Soymeal extended its revival too, gaining 0.5% to 3,380 yuan a tonne for May delivery.

'Justifiably concerned'

Soybean demand in the US is strong as well, as shown by industry data on Thursday which pegged at a record 165.4m bushels the domestic crush in December, up from 160.1m bushels the month before, and beating market expectations of 163.9m bushels too.

"The soy market is justifiably concerned about whether US soy demand is being throttled back sufficiently to insure a minimum [end-2013-14] carryover," said Richard Feltes at broker RJ O'Brien, noting that prices are some $2 a bushel below those in May-June, and $1 a bushel down on August-September levels.

"Short term, we look for a continuation of brisk soybean demand, on the heels of attractive nearby crush margins, a sizeable US Pacific North West January, February and March soy export book and attractive US livestock feeding margins," Mr Feltes said.

Indeed, investors "must consider the possibility of a technical breakout" in the March contract above high around $13.53 a bushel reached last month a breakout which could herald a move to close a chart gap up to $13.85 a bushel.

Palm revives

Meanwhile, the signals from elsewhere in the oilseeds complex were not so bad either, with Kuala Lumpur palm oil adding 0.2% to 2,541 ringgit a tonne as of 09:30 UK time (03:30 Chicago time), looking for only its second winning session of 2014.

The more resilient performance, after the vegetable oil's longest losing streak since March, reflected a weaker ringgit "helping to garner some external interest in palm oil", making it cheaper to buyers in other currencies, Singapore-based Phillip Futures said.

However, a fire at the Power Oil Rostock rapeseed crushing plant in Rostock, Germany, has also provided some support, in lowering potential for rapeseed oil production, and opening up the potential for imports of palm oil as an alternative.

European rapemeal prices have been a beneficiary too.

Back in Chicago, soybeans for March were 0.3% higher at $13.21 a bushel.

Chinese rejections

This, again, represented outperformance over corn, which edged 0.25 cents higher to $4.26 a bushel for March delivery, fighting something of a technical battle to keep hold of its 10-day moving average at just below that level.

Sure, there is continued comment over Chinese rejections, on grounds of contamination with a Beijing-unapproved GMO variety, of US cargoes of corn and distillers' grains, the byproduct of ethanol manufacture used as a feed ingredient.

And US ethanol production last week "fell well short of expectations", Luke Mathews at Commonwealth Bank of Australia noted, following data on Wednesday showing the biggest week-on-week drop in output on record.

However, this was down to one-off disruption from the US cold snap, rather than a strategic retreat.

Egypt tenders again

Wheat, meanwhile, held steady at $5.67 a bushel in Chicago for March delivery, remaining among its lowest levels in three years, but given some support against further losses from yet another tender by Egypt's Gasc grain authority overnight.

With the US having won the last tender, at the weekend, there is hope that it will do so again too, providing evidence of demand at reduced prices.

"If a large purchase of US wheat is observed, which is possible, we might see some support come through for CBOT futures," Mr Mathews said.

'Not much of a threat'

And there is the continued US cold to factor in too.

"With harshly cold weather in the US, there might be concerns of such conditions affecting the US wheat crop," Vanessa Tan at Phillip Futures said.

"However, we do not see this being much of a threat to the wheat crop in the Midwest for the next week.

In light of the supply situation of the wheat market, we remain bearish on US wheat."

Furthermore, there is plenty of comment over India's forecast of a potential record 100m-tonne wheat crop this year, given the country's growing status as an exporter.

Indian pressure

Among soft commodities, raw sugar put its worst foot forward again, setting a fresh three-year low of 15.10 cents a pound before recovering some ground to stand at 15.16 cents a pound, a drop of 0.6% on the day.

"Expectations that the Indian government today will approve incentives to boost sugar exports" are weighing on values, CBA's Mr Mathews said.

Ms Tan said that the incentives "being considered to be given to struggling Indian mills in an effort to boost raw sugar exports, [spell] bearishness for the soft commodity".

Data later

Back in grain markets, price direction later may be set by weekly US export sales data, expected to come in at 350,000-600,000 tonnes for wheat, an improvement on the 295,000 tonnes last time.

For corn, sales are expected at 300,000-550,000 tonnes, at least double the previous week's result.

And for soybeans, sales of 750,000-1.05m tonnes are forecast, compared with 156,200 tonnes last time.

Evening markets: grain prices drop, as soybeans scoop buyers
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