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Morning markets: US squeeze lifts soy. China data help sugar

The news out of China, one of the world's biggest agricultural commodity importers, was mixed, at best.

The HSBC flash manufacturing purchasing managers' index for China came in at 50.3 for August, down from 51.7 last month.

The data "suggest that the economic recovery is still continuing but its momentum has slowed again," said Qu Hongbin, HSBC's chief China economist.

"Growth will likely stay on a relatively subdued path."

Shares weakened in Shanghai by some 0.4%, and by 0.8% in Hong Kong, after a four-day winning streak that had taken stocks to a four-year high, while the South Korean Kospi index dropped 1.6%.

Import data

There was Chinese customs data too, some of which the market has got wind of before, for instance the 3.9% rise, year on year, in imports last month of soybeans  - of which the country is by far the top buyer - to 7.47m tonnes.

Imports so far this year have grown by 20% to 41.7m tonnes.

Corn imports last month rose 18.8% - but to a lowly 86,369 tonnes nonetheless, with data for rapeseed actually more impressive, up 77% at 426,184 tonnes.

Barley purchases soared 366% to 763,535 tonnes, taking the total for 2014 to 3.19m tonnes, a rise of 167% year on year.

Less impressive were palm oil imports, down 3.9% at 468,844 tonnes, taking the 2014 total into decline, albeit of only 0.1% to 3.33m tonnes.

Sugar imports slumped 44% to 280,000 tonnes. That said, month on month, volumes more than tripled, giving more colour to reports this week that Chinese authorities are placing pressure on buyers to prioritise use of huge domestic stocks.

Raw sugar futures for October rose 0.9% to 15.84 cents a pound in New York as of 09:45 UK time (03:45 Chicago time),

ProFarmer results

Returning to soybeans, the data certainly did not impress Chinese investors, who sent the January contract on the Dalian exchange down 0.7% to 4,497 yuan a tonne, a sixth successive day of decline.

However, the oilseed in Chicago fared significantly better, adding 0.7% to $10.45 a bushel for the best-traded November lot recovering from a contract closing low to the last session.

And this despite further strong news from the ProFarmer crop tour of the Midwest, which pegged the average soybean pod count in Iowa, the top producing state, at 1,091.34-1,224.96 per square  yard (ie 3 feet by 3 feet), up from 802.98-1,101.49 last year.

In Illinois, another top producing state, the pod count was 1,299.17 per square yard, above last year's tour finding of 1,115.97.

Kim Rugel at Benson Quinn Commodities said that "47.0 bushels per acre is now seen as potential soybean yield versus pre-USDA August Wasde report expectations nearer 46.0 bushels per acre".

(The Wasde actually put the yield at 46.4 bushels per acre.)

'Inventories are tight'

CHS Hedging added: "Weather remains near ideal with warm/wet conditions through the weekend across the Midwest. Sounds like the perfect recipe for making a soybean crop."

However, the strong US cash market, spurred by the tight supplies left over from the 2013 harvest, continues to attract attention.

At Chicago-based Futures International, Terry Reilly noted that yesterday, while one Midwest processor lowered bids for soybeans by $0.50 per bushel, "some others increased bids by $0.05-0.75.

"Bottom line - soybean inventories are tight, especially across the eastern Corn Belt."

Cash vs futures

Still, even though the near-term September futures contract has been relatively strong, "basis levels continue to advance faster than the board does for spot soybeans," CHS said.

The September contract's problem may be that it has only until September 12 to run, limiting its liquidity (although an imbalance could, of course, spell position-covering spikes ahead).

"Open interest in the September futures contract is about at the end of its life," Ms Rugel said.

That said, the September contract added 1.0% to $11.31 a bushel.

'We look for a rally'

There is also something of a precedent for a little seasonal firmness in the November soybean futures contract.

"We expect November soybean prices to rally into September before declining into a new low in October," said Anne Frick at Jefferies, terming this "a very common price pattern".

The analysis is based on separating out years when the November soybean contract notched up an August low below its July low, which was in turn beneath the June low.

These years "usually saw a bounce" in November soybeans "from an August low into late August or, commonly, September".

Besides, "there are probably also concerns about early frost after such a cool growing season.

"We look for a rally over the next two to four weeks."

'Inventories are scarce'

Soybeans were helped by strong performance of products, with soymeal for September adding 1.5% to $408.80 a short ton, helping the December contract gain 0.7% to $346.50 a short ton.

Soymeal is subject to some of the same short-term supply squeeze fears as soybeans despite the soft price of distillers' grains (a corn-based rival as a high protein feed ingredient)

"Spot US soymeal inventories are also scarce," Mr Reilly said.

And even soyoil rose this time by 0.6% to 33.43 cents a pound for December, with its relatively low value in the soy product mix attracting attention as a potential buy.

Futures in rival vegetable oil palm oil remained shaky, standing down 2 ringgit at 2,047 ringgit a tonne in Kuala Lumpur, although at least failing yet to set a fresh multi-year, intraday low for the first time in six sessions.

Corn gains

Corn gained some strength from the performance of soybeans too, again despite strong ProFarmer tour results.

The Iowa yield was pegged at 177.48-180.90 bushels per acre, compared with a finding of 160.12-175.65 bushels per acre last year.

For Illinois, the yield was estimated at a record 196.96 bushels per acre, above the 170.48 bushels per acre pencilled in by last year's tour.

Still, there does remain a frost threat to corn, which also has a seasonal tendency to see rises in futures prices at this time of year ahead of a fall into harvest.

December corn added 0.5% to $3.69 a bushel.

Ukraine concerns

Wheat gained too, with concerns over the volumes of milling wheat available from Ukraine, even though ideas of export curbs, which boosted prices on Tuesday, may have been overplayed.

"Ukraine may be looking at a wheat crop with only 40% milling quality versus a normal 50%," CHS Hedging said.

Benson Quinn Commodities said: "Don't discount the idea that Ukraine has a higher of percentage of poorer quality wheat than prior years.

"There has been talk that 40ish% of the Ukraine wheat crop made an exportable milling quality spec compared to the customary 50-55%."

'Quality concerns build'

And there remain concerns over the quality of US crop too, particularly the spring wheat crop currently in the early stages of being harvested, but beset by dampness which is slowing progress (if helpful for autumn-harvested crops at an earlier stage of development).

Benson Quinn said: "The vomo matter merits attention," referring to vomitoxin, a toxic fungal residue which can render wheat unfit even for feed, although the broker added that "we need to see the wheat harvest expand into a few more areas to get a better read".

CHS said that "spring wheat quality concerns build as we wait for dryer weather before harvest can really begin."

Spring wheat for September added 0.5% to $6.13 a bushel in Minneapolis, feeling some pressure from the harvest to offset the boost from quality fears, which would reduce the amount of grain deliverable against futures.

Chicago soft red winter wheat for September gained 0.6% to $5.42 a bushel.

Wheat spreads

Still, Kansas City hard red winter wheat, an alternative to hard red spring in some uses, performed better, adding 0.8% to $6.23 a bushel for September.

Indeed, the contract has outperformed since last week highlighted its period of underperformance which had driven it to a discount against its Minneapolis peer.

Kansas City wheat has since regained a premium of some 10 cents a bushel against Minneapolis wheat.

The spread vs Chicago wheat has grown even more, by some 12 cents a bushel.

Data later

The day is, though, yet young, and has a couple of big sets of data to get through.

One will come from Canada, and Statistics Canada's revised estimates for domestic crop production.

StatsCan is expected to raise to 28.5m tonnes, from 27.74m tonnes, its estimate for all-wheat output, and nudge higher by 50,000 tonnes to 14.5m tonnes the estimate for the canola harvest.

Then there are US weekly export sales data, expected at 350,000-500,000 tonnes for wheat, a little improvement on the 338,718 tonnes last time.

For corn, export sales are forecast at 0-150,000 tonnes for old crop, and 650,000-850,000 tonnes for 2014-15. (The new crop reading last time was 787,843 tonnes.)

For soybeans, export sales are forecast at 0-100,000 tonnes for old crop, and 850,000-1.05m tonnes for 2014-15. (The new crop reading last time was 1.08m tonnes.)

Evening markets: softs find strength. But grains, soy weaken
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