Here's two assertions related to agricultural commodity
prices, only one of which is, apparently, true.
The first is that an unknown soybean buying country, presumed to be China, the top importer, purchased
568,000 tonnes of the crop from the US, the top grower.
The second is that the rally in oat futures to a record high is down to air brakes.
Running on empty
It is actually the first that investors are finding hard to
believe, as evident in the muted price reaction in Chicago, where May soybeans
actually eased in early trade on Wednesday, standing down 0.2% at $13.84 ¾ a bushel
as of 09:45 UK time (03:45 Chicago time).
And this despite a statement from the US Department of
Agriculture confirming the order, for 2013-14 delivery.
If this order were deemed true at face value, prices would have
soared, given that the US is already seen running on empty at the close of the
season, expected to end with pipeline supplies of 4.1m tonnes - and this assuming
net cancellations of export orders for the rest of the season.
Which is why investors are attempting to read something
between the lines of the USDA bulletin.
"The sale was confusing as traders are expecting old crop soybean
sales to be cancelled as buyers switch to South American origins and the price
of soybeans in South America are much lower than US for forward delivery," said
Anne Frick at broker Jefferies Bache.
"Fulfilling all of the current export commitments along with
Tuesday's sales and the other USDA demand estimates is not possible, as it
would reduce ending stocks below what is believed to be sustainable levels."
Another broker said: "This is highly irregular to see a sale
like this when South America is offering soybeans at a steep discount."
Besides, there is some reason to think that Chinese importers
are not in the market in such a big way at the moment, although it also has to
be highlighted that there is talk they are buying big from Brazil for July
"Chinese soybean crushing margins are the most negative that
they have been in nearly a year," said CHS Hedging.
Soybean futures on the Dalian exchange have certainly underperformed
Chicago peers in the last couple of weeks.
"Chinese crushers have been trying to back out of current US
purchases not add to them," another broker said.
"If the sale announcement actually gets shipped in 2013,
more than likely it will not be going to China."
Reported in error?
And there are other explanations too for the statement which
would not involve squeezing the US balance sheet, even down the idea among
traders that Ms Frick noted "that the sale may been reported in error".
Kim Rugel at Benson Quinn Commodities said that "not much is
known about this new sale, but market is speculating that the destination is
China and that the shipment period is right at end of marketing year so that new-crop
supplies could be available to meet the boats".
Richard Feltes at RJ O'Brien came up with a credible idea,
from a "reliable commercial source" that the sale "may be 'optional origin' to
Indonesia that will likely be sourced out of South America".
It would hardly be irrational for a buyer to hedge its bets
on origin, given that Argentine farmers are unwilling to sell crops, which they
see as a dollar-denominated hedge against a falling peso, while Brazil's
success in grains production well exceeds its ability to transport the
And there are actually a few doubts about the quantity and
quality of this year's Brazilian soybean crop, given the drought which has
stressed southern areas, and the heavy rains in the west hampering harvesting besides
washing away roads.
Crop scout Michael Cordonnier has cut his forecast for the
Brazilian crop by 500,000 tonnes to 88.5m tonnes, with Oil World slashing its
estimate by 4.5m tonnes to 85.0m tonnes.
'More signs of El
Another dynamic to factor in is the prospect of the start on
Friday of the expiry process for Chicago March futures, when they take on
physical commitments, and which also show the enthusiasm of traders for
delivering against the market.
So far, there have been no deliveries against March soybeans,
1 lot put against March soymeal, and
11,622 against soyoil, indicating
that this represents an attractive destination for sellers.
Still, soyoil futures outperformed on Wednesday, soaring 1.3%
to 41.39 cents a pound for March, helped by a 2.3% gain to 2,796 ringgit a
tonne in the price of rival vegetable oil palm
oil in Kuala Lumpur, lifted by concerns of dryness in Malaysia, which it is
feared could represent the start of an El Nino weather pattern.
"There are more signs pointing towards the arrival of El
Nino this year," Phillip Futures said.
"Once actualised, areas like Australia and parts of Asia
including major palm producing countries such as Indonesia and Malaysia will
experience drought conditions."
As for the other statement, about the rally in oats being down to air brakes, the
reasoning goes like so.
Air brakes do not operate efficiently at the kind of low
temperatures that Canada is experiencing, meaning that rail operators are
having to run trains at shorter lengths and at slower speeds, cutting capacity.
And, with plenty of commodities, from crude to canola,
competing for rail space, that has left oat volumes well down, at a time when
the US, a structural importer, is crying out for them.
'Within an eyelash'
"We are within an eyelash of shutting down the milling
industry in the US in terms of trying to get enough grain down there for them,
and it's not getting much better," said Randy Strychar, president of Ag
"We have got bottlenecks all over the place," he said,
adding that US millers have only some 20 days of supplies left.
And it has to be remembered that the, growing, outbreak of porcine
epidemic diahorrea virus (PEDv) in North America is fuelling demand too, with
oats a recommended part of the diet for piglets, and sows, when attempting to
limit fatalities from the disease.
Oats for March hit a fresh record high, for a spot contract,
of $5.22 a bushel before easing to stand at $5.13 ¾ a bushel in Chicago.
The better-traded May lot added 1.9% to $4.77 ¼ a bushel.
'High end of its
Both were, unusually, at a premium to corn, which stood 0.3% lower at $4.54 ¼ a bushel for March and by
0.3% to $4.59 ¾ a bushel for May delivery.
CHS Hedging noted, on the bullish side, that "the next 'polar
vortex' occurrence has reintroduced concerns of barge traffic restrictions,"
while an "oil spill on the lower Mississippi will also slow export flows".
However, another broker said that "we believe old crop corn
is at the high end of its range given the near-1.5bn bushels expected for a
carryout" in inventories from 2013-14.
"The old crop/new crop corn spreads could weaken as we get
into spring and summer when bushels come to market to pay inputs."
US weekly ethanol production later may have a bearish on
corn price moves.
'Too many shorts'
Meanwhile, Chicago wheat
for May held at $6.18 a bushel, a resilience which nonetheless improved its
chart appeal in lifting its premium over its 75-day moving average line (which
is on a descending trend).
Staying on technical, "it feels like the market still has
too many shorts," Benson Quinn Commodities said.
"Markets are overbought, or close to it, but technicals
continue to offer the support."
Cold weather in the US, threatening winterkill, is also
propping up prices.