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PM markets: soybean futures fall back, amid trade spat fears

Soybean futures started the year with a whimper, with no sign of weather disruptions in South America, but corn futures got a boost as traders unwound their short-corn/long-soy positions.

"Funds are currently buying grains reducing their short positions whilst selling some of the long positions held on soybeans/ and meal," said CRM AgriCommodities.

"South American weather will continue to be a major focus," said CHS Hedging.

Rains are good across most of Argentina and Brazil, although in the former there are actually ideas that it could be getting to wet, after weeks of dryness worries.

"South American weather and production will be the main drivers the next 2-3 months in the ramp up to US spring planting," said Tregg Cronin, at Halo Commodities.

"Nothing has changed about the narrative with soybeans as strong US demand is watching the clock until South American supplies become available, but as of yet there is no weather problem of consequence in the southern hemisphere," he said.

Weather in South America continues to be mostly benign after heavy rainfall fell in places in "Argentina, causing some localized flooding."

Argentine tax draw-down

There was a touch more pressure on soybeans, as the Argentine government announced plans to draw down the export tax on soybeans.

The government will its soybean export tax by 0.5 percentage points every month for two years, starting in January 2018.

This will leave the tariff down 12 percentage points, at 18%, by the end of 2019, with tariffs on soybeans and soyoil being reduced at the same rate.

"Farmers in Argentina had hoped for a quicker reduction in the soybean export tax, but they had to settle on a compromise," said analyst Dr Michael Cordonnier.

In fact, Dr Cordonnier suggested that the move could actually hold back supply

"Farmers in Argentina will start to harvest their 2016-17 soybean crop in March and it is entirely possible the lower export taxes starting in January of 2018 could convince farmers to hold some of their soybeans until the tax starts declining," Dr Cordonnier said.

Still, Richard Feltes, at RJ O'Brien, said the move was "viewed as slightly negative".

Fears of trade spat

Donald Trump, the US president-elect, named Robert Lighthizer as his chief trade negotiator.

Mr Lighthizer, a veteran trade lawyer, is a long term critic of China, which he has accused of failing to meet its commitment to the World Trade Organisation.

His selection has raised fears of a US trade dispute with China, which could hurt soybean shipments, and hence US prices.

And the news from across the Pacific was also warning, as China teased a devaluation of its tightly controlled currency, which is already near 8-year lows.

March soybean futures finished down 0.8%, at $9.96 a bushel.

Unwinding spreads

The unwinding of short-corn/long-soy positions, which has been a feature of the markets in recent sessions, is being helped by the relatively high price of autumn soybean futures, compared to corn.

Mr Cronin said the ratio was "still arguing for more soybean acres," which means less soil going to corn.

March corn futures finished up 1.1%, at $3.55 a bushel.            

March Chicago wheat futures finished down 0.2%, at $4.07 a bushel.

Sugar futures soar

Raw sugar futures got off to a scorching start, helped by the news that the Indian harvest is coming to an early close due to a widespread cane shortage.

25 mills in Maharashtra, India's top sugar-producing state, have already shuttered for the year, due to cane problems, the Indian Sugar Mills Association said in a statement.

And many more are likely to shut before the end of February, the association said, compared to a usual season which runs until April.

"Should the pace of production decline further, it may put further pressure on the Indian government to reduce the 40% import duty currently in force," said Nick Penney, at Sucden Financial.

There was also support from the news that a Chinese state auction only sold 92,000 tonnes of sugar, compared to the 300,000 drawdown expected.

March raw sugar futures in New York finished the day up 5.1%, at 20.51 cents a pound, after reaching as high as 20.55 cents a pound.

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