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Morning markets: soybeans defy China import jitters, for now

The, arguably, good news for grain bulls was that there was bad stuff going on in equity markets again.

There has, anecdotally, been talk of fund cash returning to commodities, after emerging market jitters put the skids under shares.

And stocks, having stabilised earlier in the week, undertook a fresh retreat on Thursday after some dismal Australian unemployment figures, showing the jobless rate at a decade high of 6%, as 3,700 jobs disappeared last month.

Economists had expected a gain in jobs of 15,000.

A small retreat by shares on Wall Street overnight hardly helped either.

Shares dropped 0.6% in Shanghai, 0.5% in Hong Kong and 1.8% in Tokyo.

'Losing momentum'

"The rally in risk assets is losing its momentum," Crédit Agricole said.

Well not quite all risk assets, with wheat managing to rediscover forward gears, edging 0.2% higher to $5.88 a bushel in Chicago for March delivery as of 09:40 UK time (03:40 Chicago time), despite the headwind of a retreat in the US cold which has threatened winter wheat seedlings.

Technicals may be turning less favourable too, after the contract touched the 50-day moving average in the last session, and nearly got the psychologically important $6.00-a-bushel mark, only to fall back.

"With the exception of possible damage to the soft red winter wheat crop due to the ice/snow storm that started on Tuesday night, and even then, it's difficult to come up with a fundamental reason for wheat futures to extend recent gains, or even hold current values, prior to a downward correction," Benson Quinn Commodities said.

"The potential for additional short covering in Chicago exists if Wednesday's highs can be taken out.

"But I am not convinced the rest of the trade is willing to push current values at this time."

'Robust demand'

Luke Mathews at Commonwealth Bank of Australia put it so: "The failure to push through the psychologically important $6.00-a-bushel barrier last night corresponded with technical resistance at the 50 day moving average."

That said, at Phillip Futures in Singapore, Vanessa Tan said flagged "robust demand" for wheat.

"Japan offered to purchase 286,091 tonnes of wheat from the US, Australia or Canada, after purchasing 28,655 tonnes of Canadian wheat," she said.

More on demand will be known later, when the US Department of Agriculture unveils weekly US export sales data, expected at 450,000-750,000 tonnes for wheat.

'Waited too long?'

Perhaps more unexpected was a 0.6% rise to $13.30 a bushel in March soybean futures, given the first confirmation on Wednesday of Chinese cancellations of orders from the US, of 272,000 tonnes, seen as the first of many.

One broker said: "Currently the rumours state that another 400,000 tonnes could be cancelled," with more likely as supplies from the Brazilian harvest increase.

At Market 1, Mike Mawdsley said that "of course" when the US had, less than half way through 2013-14, already sold 106% of volumes forecast by the USDA for the whole season, "cancellations had to show up sometime.

"However, how much more do they cancel will be key.

"Some say buyers have waited too long to cancel some shipments as the soybeans and freight are lined up at the Gulf and the Pacific North West.

"It would take some dollars to bust out of those commitments."

'Sign of more cancellations'

Or would it?

Coincidentally, another headwind to Chinese imports of US soybeans appeared with talk that officials are testing cargos for traces of MIR 162, the Syngenta genetically modified corn variety which has yet to be approved in Beijing.

MIR 162 has already been the cause of a series of rejections by Chinese authorities of imports of US corn.

"This testing seems to be only a formality but with talk of negative crush margins in China it could be a sign of more slowdowns and cancellations to come for US soybeans," Benson Quinn Commodities said.

'Lucrative feeding margins'

Still, Richard Feltes at RJ O'Brien had a different take on it, flagging that Chinese import demand remains strong, after all.

"Old crop soybean values are supported by seemingly insatiable Chinese demand, tight US stocks, lucrative domestic feeding margins and a [strong] domestic soymeal basis," he said.

More on the domestic US soy market will be known on Tuesday, with the release of crush January data expected to come in at 165m bushels, within sight of the bumper December number of 165.3m bushels.

Later today, weekly US exports sales data are expected at 600,000-950,000 tonnes.

Soymeal itself stood 0.3% higher for March delivery at $444.80 a short ton.

Stocks report jitters already

Corn, meanwhile, continued to struggle, easing 0.1% to $4.39 a bushel for March.

The boost from USDA data on Monday, when the US stocks number was cut by far more than traders had expected, is being undermined by concerns over a big report next month, besides by farmer selling at prices well above those last month.

"I would categorise the corn market in the ramp up to the March 31 acreage and stocks reports as 'stable to lower', with rallies capped by farmer selling  - US farmers were active sellers last week - and fear of a bearish surprise in the stocks report," Mr Feltes said.

Many investors feel that the USDA is overestimating the potential for corn feeding in the US, given that the cattle herd is smaller than had been thought, and porcine epidemic diahorrea is taking a toll on hog herd rebuilding.

Ethanol lag

Furthermore, warmer weather in the US is hardly a help, in reducing the short-term squeeze on supplies.

"Temperatures in the US should return back to more normal temperatures, boosting grain movement which had slowed down recently on harshly cold conditions," Phillip Futures' Vanessa Tan said.

And ethanol data on Wednesday were OK, but not fantastic, showing production at 905,000 barrels a day last week, up 7,000 barrels a day week on week, but below the pace needed to hit the USDA forecast for 2013-14.

"Weekly grind needs to average closer to 930,000 barrels per day to keep pace with the USDA's target of 5bn bushels of corn usage for ethanol," Benson Quinn Commodities said.

US export data sales later are expected to come in at 800,000-1.20m tonnes.

'Bubble wrap coffee'

Among soft commodities, arabica coffee futures got off to a firm start in New York, rising 0.6% to 144.05 cents a pound for the best-traded May contract, helped by an upgrade by Goldman Sachs and continued concerns over the impact of drought on Brazil's crops, for 2014 and 2015.

A senior executive at Cooxupe, the world's biggest coffee co-operative, noting the number of empty cherries, comparing crops to "bubble wrap, because there is only air inside".

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