Evening markets: wheat prices soar, even as soybeans plunge
By - Published 12/03/2014

Psst. Anyone for some cut price soybeans?

There were not enough takers, it seems, as the oilseed extended its losing spree in Chicago, closing down 1.8% at $13.87 a bushel for May delivery.

That took the contract's losses nearly to 5% so far this week, although it has to be noted that the lot did at least close more than $0.20 above its intraday low.

The decline was blamed on the persistent talk of mass cancellations by Chinese buyers of orders of Brazilian soybeans - speculation which has only gained credence with the broader China economic jitters which sank copper in particular, sending it to $6,544 a tonne at one point, its lowest in nearly four years.

While it may at first sight appear a relief for Chicago prices that Chinese buyers are ditching Brazilian, rather than US cargos, the picture is not so simple, with cancelled South American orders now looking for fresh homes.

Cancellation spree

"Chinese importers have washed out of 20 cargoes of Brazilian soybeans and are wanting to wash out of as many as 20 more," Darrell Holaday at Country Futures said, highlighting common market belief.

"In some instances to do that they are offering Brazilian soybeans to US soybean crushers at values below the cost of soybeans in the US.

"This has pressured the US Gulf and Interior basis levels."

While Chinese buyers have previously stepped in on corrections in soybean prices, "this time they are not likely to do that as they simply have too much soybean inventory in China, too much waiting to unload and in transit," Mr Holaday said.

"They have to get the pipeline stopped."

Brazil downgrade

Not all the news on soybeans was quite so bearish.

CHS Hedging, while noting that "talk continues of major Chinese cancellations of Brazilian soybeans, and now also of US origin", added that "no confirmation has yet been seen".

Oil World's forecasts on Tuesday of super-tight US soybean supplies remain in investors' minds.

Meanwhile, Conab, the Brazilian crop bureau, slashed its forecast for the domestic harvest to 85.4m tonnes, from 90.0m tonnes, citing damage from the drought which has sent coffee and sugar prices soaring.

And Jefferies Bache noted that "there has been chatter in the market that South American quality may be low due to summer stress and rainfall during harvest that could keep end users taking higher quality US supplies.

Chart signal

However, the New York-based broker added that the "wide South American discount to US values should be more than enough to offset possible loss of product yields at the processing level".

And, chart-wise, soybeans' bullish credentials were damaged by a gap that appeared in the chart, only of some 3 cents between the last session low and today's high, but enough to worry technical investors nonetheless.

Besides, hedge funds have a whole lot of soybeans to sell, holding a large net long position.

Soymeal for May fared little better, dropping 1.7% to $436.50 a short ton in Chicago, where soyoil for May dropped 0.8% to 43.42 cents a pound.

Wheat soars

Grains, however, proved a much better bet, wheat especially, which for May soared 3.7% to $6.83 3/4 a bushel in Chicago, the best close for a nearest-but-one contract in four months and up 23% from a late-January low.

In part, the outperformance of wheat compared with soybeans was not a coincidence, with traders reporting that investors are closing "long soybean, short wheat" spreads which have until late been a profitable bet.

Indeed, Chicago wheat is one agricultural commodity in which hedge funds have proven willing to retain a net short position although that may be history by now.

And there is some fundamental story on which to build a long position.

Twin engine

It has two main strands the crisis in Ukraine, a major exporter of wheat, and even more so of corn, and dry weather testing US winter wheat seedlings.

"Wheat markets continue to move higher on tensions in the Ukraine and talk over dry weather in the US," CHS Hedging said, adding that "fund buying continues to fuel the rally".

Concerns over the Ukraine crisis have been heightened by the prospect of a controversial, Moscow-sponsored poll this weekend which may lead to Crimea seceding and becoming part of Russia.

The G7 on Wednesday demanded that Russia "cease all efforts" to "annex" Crimea.

'Little precipitation expected'

As for the US dryness, US Commodities highlighted "forecasts for dry weather in the Plains threatening winter crops.

"Little-or-no rain has fallen in the past 30 days in parts of Kansas, Oklahoma, and Texas.

"Little precipitation is expected over the next two weeks.

"Temperatures are forecasted to run above average in most of the Plains for the next week to 10 days, with the Midwest to fall slightly below average today into next week."

Prices rise

The Midwest is more pertinent to Chicago soft red winter wheat itself, which is grown there.

And, indeed, the North American Millers Association issued a downbeat forecast for the soft red winter wheat crop, of 437m bushels.

In fact, Chicago wheat, the speculators' favourite, outperformed Kansas City hard red winter wheat, which has more drought in its growing area, but rose a relatively slovenly 2.5% to $7.46 3/4 a bushel,

Paris soft milling wheat for May close up 1.5% at E213.50 a tonne, also gaining from Ukraine concerns, with the European Union an obvious alternative wheat source for importers nervous about the former Soviet Union.

That represented the contract's best finish in nearly a year.

Ethanol stocks wane

Corn gained too, largely on the strength in its fellow grain, which is a rival for uses such as livestock feed.

May corn added 1.1% t $4.88 1/2 a bushel  in Chicago.

As an extra spur, Israeli buyers purchased 50,000 tonnes of corn thought likely to be sourced from the US, showing a sign of demand even at these prices.

And weekly ethanol data could be taken as positive. Sure, production tumbled 25,000 barrels a day to 869,000 barrels a day.

But stocks were lower too, down 703,000 barrels to 15.91m barrels, the lowest reading this year.

The grains rally lifted oats too, which soared 16.7% to close at $5.57 3/4 a bushel for March, setting a record earlier for a spot contract of $5.63 1/4 a bushel.

While this reflected in part technical considerations on low volumes, as holders of short positions struggled to close out ahead of expiry on Friday, the May contract managed  a healthy rise as well, closing up 4.7% at $4.44 1/2 a bushel.

'Demand has not picked up'

As for New York's agricultural commodity leaders, raw sugar for May closed down nearly 2% at 17.67 cents a pound, undermined by concerns over demand, which have been exacerbated by the China jitters.

China is a major sugar importer.

"The problem for the sugar market is also the fact that demand has not picked up," Nick Penney at Sucden Financial said, highlighting weakness in white sugar, which as the finished product is typically more sensitive to immediate needs of end-users.

"It seems the market is consolidating in a rough 17.50-18.50 cents a pound range in the short medium term, awaiting weather developments or some evidence of demand," he said.

While the spree of downgrades to this year's Brazil Centre South cane crop is not over, following drought which Conab revealed on Wednesday had hurt soybean crops in the region, there is not the consensus to underpin prices.

'On course for disaster'

Although Canaplan, saying the Centre South cane crop "is on course for disaster", has set itself up for a downbeat forecast, which it is to issue next month, other commentators, see a figure not far from last year's 596m tonnes.

"It seems that the speculative buying has become sporadic and producers are getting more willing to take advantage of anything above 18 cents a pound," Mr Penney added.

Arabica coffee remained more resilient, but suffered a bit of profit-taking nonetheless, to end down 0.4% at 205.30 cents a pound for May delivery.

"Although there was rainfall at the weekend in roughly half of the Brazilian growing regions, it fell short of the amount that had been forecast," Commerzbank noted.

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