Corn may have won
the battle, but soybeans are winning
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.
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
"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".
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
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%.
its revival too, gaining 0.5% to 3,380 yuan a tonne for May delivery.
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
"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.
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 ¼ a bushel.
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
held steady at $5.67 ¾ 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
"If a large purchase of US wheat is observed, which is
possible, we might see some support come through for CBOT futures," Mr Mathews
'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.
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
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".
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.