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Morning markets: soybeans extend rally, help grains gain too

Whatever soy bulls have been taking, driving a surprise rally in the oilseed, well, it hasn't worn off yet.

In fact, there was bright mood around in many markets in early deals, after gains in Wall Street shares last night, and with some more positive Chinese data.

HSBC's flash estimate for Chinese manufacturing conditions this month came in at 49.7, up from 48.1 for last month, and the best figure in five months, if still indicating contraction (being below 50.0).

"Some tentative signs of stabilisation are emerging, partly as a result of the recent mini-stimulus measures and lower borrowing costs," said Qu Hongbin, economist at HSBC.

And Chinese sentiment is important for prices of many agricultural commodities, including soybeans, of which the country is the top importer (as it is for cotton, rubber etc).

On the Dalian, soybeans for January for January extended their winning run, although only just, adding 0.1% to 4,616 yuan a tonne.

'The confusion continues'

Still, while there are better signs from China, where soybean crush margins are believed to have improved dramatically, and there is talk of a series of 2014-15 soybean import orders too, the extent of the strength in Chicago prices has many observers puzzled even taking into account the squeeze on US supplies.

"I really don't have a solid reason why soybeans would keep running higher, but they are," said Mike Mawdsley at broker Market 1, thinking particularly of the new crop November contract, which stood 1.2% higher at $12.69 a bushel as of 09:20 UK time (03:20 Chicago time).

Earlier, the contract touched $12.72 a bushel, an 11-month high for the contract.

"When funds buy, a market goes up and they like beans," Mr Mawdsley said.

Another US broker said: "The confusion continues in Chicago with another sharp rebound in soybeans."

Late surge

For July soybeans - which added 0.9% to $15.19 a bushel, and earlier hit a contract high of $15.22 a bushel - the continued rise followed a late jump in prices in the last session.

"Over 16,000 contracts were bought on the electronic market in the last 15 minutes to close the contract over yesterday's high," the broker said.

"The reason to suddenly own these contracts is hard to grasp when no fresh information was released during this time."

However, there is a suspicion, that the unwinding of a large long corn-short soybean position may be involved.

"This would help explain why there has been such a large move in the spread between the two products," the broker said.

Soymeal factor

Another factor that brokers have noted is leadership from soymeal, which has also been notably strong on China's Dalian exchange, closing up 2.1% on Thursday for September delivery, the contract's highest close, and up 6.0% in two weeks.

"Strong soymeal values keep giving strength to soybeans," Mr Mawdsley said, noting that soyoil too has "finally joined the rally for a change, rather than just buy meal and sell soyoil", a popular spread position.

Soyoil for July added 0.6% to 40.73 cents a pound, given strength to rival vegetable oil palm oil too, which recovered 0.2% from its four-month closing low in the last session to reach 2,509 ringgit a tonne in Kuala Lumpur.

Back in Chicago, soymeal for July broke above $500 a short ton to reach $503.10 a short ton, up 1.0% on the day, and setting a further contract high.

Soybeans vs corn

 As for corn, soybeans' main rival in US spring sowings programmes, the grain managed a more modest gain of 0.4% to $4.73 a bushel for the new crop December contract.

That left the November soybean:December corn ratio at 2.68:1, up from below 2.40:1 last week, offering handy gains to investors who called that one right.

The grain has struggled to compete, with improved US sowing conditions boding well for area, reducing the chance of farmers switching to soybeans, which can be later planted.

July corn gained 0.6% to $4.77 a bushel, continuing to feel some glow from decent ethanol production (rising) and stocks (falling) data.

Investors are awaiting the results of a Chinese corn auction scheduled for today.

'Nothing more than profit-taking'

Wheat managed a bounce too, of 0.4% to $6.67 a bushel in Chicago for July delivery.

That said, it has started well the previous two sessions, only to end lower.

Indeed, in the past 11 sessions, the contract has closed higher only once, and then only by a token amount.

What buying there has been "seems to be nothing more than profit-taking of short positions, while brief rallies off the lows probably have as much to do with the offer backing away", Brian Henry at Benson Quinn Commodities said.

"I don't see the trade committing to length at current levels and I can't argue with them.

"The speculative trader that got short has plenty of profit, but there aren't enough of them to trigger a decent recovery."

It little helped that Russia estimated its grains harvest at a robust 100m tonnes.

Export demand

That said, there are signs of demand around, with Japan buying 97,372 tonnes of milling wheat from Australia, Canada and the US on Thursday, and Algeria in the market for 50,000 tonnes of optional origin durum wheat for August shipment.

This following Iraq's purchase of 150,000 tonnes of Russian wheat for August shipment, while Jordan bought 50,000 tonnes of optional origin wheat for September shipment.

The most-watched export data of the week will be the weekly US export sales statistics, expected for wheat at 50,000-250,000 tonnes of old crop, and 150,000-300,000 tonnes for 2014-15.

For soybeans, the figures are expected at zero, and potentially net cancellations for 2013-14, and 500,000-700,000 tonnes for new crop.

Corn export sales are seen coming in at 325,000-525,000 tonnes for 2013-14, and 50,000-200,000 tonnes for next season.

Monsoon worries

Among soft commodities, cotton for July gained 0.6% to 89.79 cents a pound in New York, helped by forecasts of some setbacks to the monsoon in India, the second-ranked exporter of the fibre (after the US).

The Indian Institute of Tropical Meteorology has forecast delayed monsoon advancement, with first rainfalls seen coming in below normal.

The El Nino weather pattern currently seen as likely to kick in soon is typically associated with a weak monsoon.

Cotton is also, as an industrial commodity, more attuned to broader market sentiment than other, food ags. 

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