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PM markets: China import jump sees soy evade grains weakness

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It took something a bit special to avoid selling in the agricultural commodities complex.

It was not just some recovery in the

dollar

which undermined prices, in making values of dollar-denominated exports, such as many ags, less affordable to buyers in other currencies.

(In fact, commodity prices overall, as measured by the

CRB

index, edged 0.1% higher.)

The weather turned against

corn

and

soybean

bulls a bit, in putting more rain in the Midwest forecast – at least on early runs.

Weather outlooks

"A little wetter run this morning pulled the market off the high," said Darrell Holaday at Country Futures.

"This morning's run was much wetter for the last half of next week."

That said, the latest "midday run is not a as wet in Iowa and Illinois in the last half of next week as the morning run", Iowa and Illinois being the top two corn and soybean growing states, where dryness has remained a worry.

"But it still is indicating a system moving through in that region late next week," Mr Holaday added.

'Distinct trend for wetter conditions'

Indeed, looking a week ahead, WxRisk.com said that "we can clearly see a distinct trend for wetter conditions developing over the eastern half of the central and upper Plains and all the western Corn Belt after August 15.

"In fact, the data turn quite wet after August 18 and continue into the first week of September."

The weather gave a more negative bias to trading, which proved somewhat volatile amid positioning ahead of the US Department of Agriculture's Wasde briefing on Thursday on world crop supply and demand, a key a event on the ag investors' calendar but particularly closely-watched this time.

The USDA is expected in the Wasde to cut estimates for US soybean and, in particular, corn yields this year, thanks to dry weather last month for the western Corn Belt (with some eastern areas saddled with too much moisture).

On our analysis, China cash soybean crush margins were running at positive 93 cents a bushel versus 66 cents late last week, and compare to 2 cents at this time a year ago.

Chart ceiling

And chart factors hardly helped corn either.

Benson Quinn Commodities noted earlier that "the corn and

wheat

markets are being challenged by key moving averages near this morning's highs.

"Trade above these levels may trigger additional short-covering."

However, corn futures for December never got to break above their 100-day and 200-day moving averages, at $3.88-3.99 a bushel, with that failure contributing to a 0.9% fall at the close to $3.83 ¾ a bushel.

Chinese import surge

For Chicago soybeans, it was the 40-day line, which has been less closely watched, and at some $9.76 a bushel November basis, which proved difficult to breach successfully.

Still, the November soybean lot managed to close up 0.3% at $9.73 ¼ a bushel, given support by record Chinese import data for July, crossing 10m tonnes for the first time, a 30% surge year on year.

"January-July soybean imports have now totalled 54.9m tonnes, which is up 17% year on year, and likely means the USDA is still underestimating Chinese import growth," said Tregg Cronin at Halo Commodity Company.

That said, he also noted that the figure "helps square the stories of recent Chinese soybean cargo cancellations as port stocks pile up".

'No reason for excessive euphoria'

Indeed, it has to be noted that there was a somewhat mixed response to the data among commentators, with Commerzbank saying that the import surge was "no reason for excessive euphoria".

"Part of the July imports were probably making up for the weak June," when imports were held back, a dynamic attributed to a drop in China's VAT on soybean imports from the start of last month.

Furthermore, "Chinese oil mills have been suffering from negative processing margins since February, with the exception of just a few days," the bank said, quoting Reuters data.

"The reason for this is high stocks of soymeal that is used in the country for animal feed – they are at their highest level since the data series began six years ago."

Palm soars

The bank flagged reports that "in isolated cases soybeans are already being re-exported at a loss – soybeans that may previously have been ordered without sufficient financial cover through loans".

So exports "in the coming months are likely to prove significantly weaker".

However, Terry Reilly at Futures International offered at least a more positive spin on Chinese soy processors' profitability, saying that "on our analysis, cash crush margins were running at positive $0.93 a bushel versus $0.66 late last week, and compared to $0.02 at this time a year ago".

Whatever,

soyoil

ended up 0.8% at 34.22 cents a pound in Chicago for December, chasing a 2.1% surge in futures in rival vegetable oil

palm oil

overnight in Kuala Lumpur, ahead of Malaysia palm data on Thursday which some observers suspect will show a weak seasonal rise in output.

'Wheat upside may be limited'

Back in Chicago,

wheat

for September tumbled 1.4% to $4.57 a bushel, hurt by its own chart failiure, with the contract proving unable earlier to hold above its 100-day and 200-day moving averages at around $4.67 a bushel.

Richard Feltes at RJ O'Brien said that "wheat upside may be limited with European Union and Russia harvests accelerating with better-than-expected yields".

(It has to be said that rains have ground the UK harvest to a halt.)

'Millers are not as aggressive'

Meanwhile, Halo's Tregg Cronin flagged the perils of extending the last session's gains for too long.

"US wheat has made itself competitive into the export grids for many destinations, but can't afford to rally away from current levels or risk pushing that business right back out the door," he said.

Indeed, there are signs of softness in the domestic market too, with Country Futures' Darrell Holaday noting that "wheat basis levels have weakened as the millers are not as aggressive as they were a month ago.

"They got their supply needs filled through a lot of the fall and there a significant amount of wheat needing to find a home before the fall harvest."

'Producers continue to sell'

Among soft commodities,

cotton

managed to outperform its fellow row crops, adding 0.8% to 71.13 cents a pound for December delivery, amid ideas that a strong export performances means a downgrade to the estimate of US stocks of the fibre at the close of 2016-17 (last month).

Furthermore, cool conditions in Texas, the biggest producing state, are worrying investors.

However,

raw sugar

for October eased 0.6% to 13.78 cents a pound, with the market "on the defensive as an absence of hard fresh news is acting as a weight on values," said Nick Penney at Sucden Financial.

"The action late last week and early this week has suggested that producers continue to sell into any rally and the 15-cent level has attracted much price fixing from this quarter."

India rumours

In fact, the selling in sugar could be worse, were it not for the residual ideas of India potentially cutting tariffs to zero to encourage imports of, it is believed, 300,000-500,000 tonnes – although potentially of white sugar rather than raws.

"The rumours circulating about potential reduced or zero tariff imports by India may be holding the market back from a further meltdown," Mr Penney said.

However, from a chart perspective Jack Scoville at Price Futures, while saying that the market was "now liquidating" after failing at "some big resistance areas last week", added that "the charts show that futures remain in an overall trading range.

"The range should probably hold."

By Mike Verdin

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