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AM markets: record Chinese imports send soy futures higher

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So much for turnaround Tuesday.

While the second session of the week has a habit of reversing a strong direction on the first, Chicago traders say, this time futures managed to keep heading the same way, upwards.

This as investors digested two sets of important data, and anticipated a third.

'Looks a little odd'

Overnight bought, as usual, the weekly US Department of Agriculture crop progress report, which actually didn't appear to offer that much in the way of a lead.

Yes, the US soybean condition rating edged higher 1 point also to 60% good or excellent, rather than holding steady as investors had forecast.

But the corn figure dropped by 1 point to 60% rated "good" or "excellent", rather than staying flat as traders had expected, a decline reflecting in part a 5-point decline in the figure for Illinois, the second biggest producing state.

"The Illinois slide looks a little odd, and may prove supportive in the night trade," said Benson Quinn Commodities.

'Materially poorer than normal'

Certainly, Chicago corn futures for December added 0.5% to $3.88 ½ a bushel as of 09:45 UK time (03:45 Chicago time).

However, that also seemed to be down to the data underlining the weaker condition of the US crop this year, ahead of Thursday's USDA Wasde world crop supply and demand briefing, a key event of the grain trader's calendar, which is expected to cut the forecast for the US corn yield this year.

"The crop condition is no disaster but it is materially poorer than normal," said Tobin Gorey at Commonwealth Bank of Australia.

The three-year average rating is 72% good or excellent.

"The survey will bolster analyst's confidence that yields will be sub-par in 2017."

Yield forecasts

But how much lower?

The market forecast is that Thursday's Wasde will show a figure of 166.2 bushels per acre, below the current estimate of 170.7 bushels per acre.

Still, that consensus forecast disguises a fairly wide range of expectations, from 162.8-168.5 bushels per acre.

And there is always the prospect of further downgrades ahead.

Terry Reilly at Futures International said that "based on the decline in Illinois corn by 5 points for good or excellent, there is a good chance the USDA September [Wasde] yield figure could end up below what they report this Thursday".

Chinese import surge

For

soybeans

, the good or excellent reading of 60% compares with a three-year average of 69% for the time of year, ie a little closer than corn to what is typical.

Still, investors have been talking of only a small drop in the USDA yield figure in the Wasde, of 0.5 bushels per acre to 47.5 bushels per acre, suggesting prices are prone to upward move if the figure ends up below that.

And the other piece of overnight data, on Chinese imports for July, was firmly supportive for the oilseed, coming in at a record 10.08m tonnes, up 30% year on year, and 31% from the 7.69m tonnes imported in June.

'Should be taken positively'

The strength of the figure looks in part down to a cut in VAT on soybean imports from the start of July, which would have incentivised importers to delay purchases until then.

Nonetheless, the data, combined with data imports in the likes of steel and oil, was viewed as underlining strength in China's appetite for raw materials.

"China's imports of commodities for July came in better than expected, with the normal seasonal downturn seemingly delayed for another month," Australia & New Zealand Bank said.

"Of the major commodities, only coal has failed to record strong year-to-date growth rates in imports.

"This supports our view that the outlook for China's demand for commodities remains broadly positive."

The data continue "a run of better-than-expected data which should be taken positively by the market", the bank added.

Faster-than-expected exports

Investors anyway expect an increase in the Wasde in the USDA's estimate for US soybean exports this season (which ends this month), given a faster-than-expected pace.

Data on Monday coming in at 25.2m bushels, above expectations, suggested that "soybean exports could exceed USDA's current export projection of 2.10bn bushels" for 2016-17, Futures International's Terry Reilly said.

"Only 19.2m bushels per week are needed to reach USDA's projection from now" until the end of the season.

Soybean futures for November added 0.8% to $9.77 ¾ a bushel, crossing back above their 40-day moving average.

'Quietly correcting'

Chicago

winter wheat

futures too added 0.8%, to $4.67 ¼ a bushel, before running into a chart ceiling, with both 100-day and 200-day moving averages at around this point.

Benson Quinn Commodities noted that "the winter wheat markets haven't had much interest in trading near the $4.50-a-bushel level.

"The winter wheat markets had been oversold, but are quietly correcting that issue."

'Isn't going to measure up very well'

The gain also grabbed back a bit of ground versus Minneapolis-traded spring wheat, which has outperformed on drought damage to the US crop.

In Thursday's Wasde, the "most important wheat number will be the USDA's updated take on US hard red spring wheat production, with trade looking for a 33m bushel cut to 393m bushels" in the harvest, Richard Feltes at Chicago-based RJ O'Brien said.

In fact, the US spring wheat rating improved 1 point week on week, albeit to a still-poor 32% good or excellent.

But it is not only the US crop under the microscope, with Benson Quinn Commodities noting that the relatively warm, relatively dry conditions in western Canada are limiting the production potential of that crop.

"It's by no means a failure, but the crop isn't going to measure up very well against production of the prior year."

Minneapolis wheat for September actually added 0.6% to $7.30 ½ a bushel, with the better-traded December lot up 0.5% at $7.43 a bushel.

By Mike Verdin

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