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Evening markets: China worries take edge from soybean rally. But meal, wheat soar

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Soybean futures, having outperformed wheat in early deals, ended markedly behind as the stimulant of concerns over dryness in Argentina rain into the depressant of worries over China demand.

 

Soybean futures for March still ended higher in Chicago, by 1.9% at $10.01 ¾ a bushel, a two-month closing high.

 

But a finish above the psychologically important $10-a-bushel mark had looked touch and go earlier, after the US Department of Agriculture unveiled the cancellations of Chinese orders of 455,000 tonnes of US soybeans, for 2017-18 delivery.

 

“This does bring into question how many soybeans China may actually take that they have booked,” said Karl Setzer at MaxYield Co-operative.

 

“While the US does not have a significant volume of unshipped soybean sales on the books, any amount of additional carryout at this stage of the marketing year is negative,” given that the country’s soybean stocks are already expected to end the season at their highest since 2006.

 

(To be exact, as of the start of the month, China had 3.32m tonnes of purchases of US soybeans outstanding for 2017-18, compared with 23.1m tonnes already shipped.)

 

‘Showers generally underperformed’

 

Still, on the positive side for prices, the USDA did unveil fresh sales of US soybeans of 198,000 tonnes for this season, to an “unknown” import destination, plus a further 116,000 tonnes for 2018-19.

 

And then there were the continued worries over Argentine weather, with Radiant Solutions, for example underlining that over the weekend “showers generally underperformed in southern Cordoba and Santa Fe, but lead to some improvement in northern Cordoba, Entre Rios, and northern Buenos Aires.

 

On the outlook, the weather service said that “dry weather is expected this week, which will allow dryness to increase again, stressing corn and soybean development”.

 

Meal soars

 

This has certainly pushed a step lower expectations for Argentina’s soybean harvest, with Benson Quinn Commodities flagging that “private forecasters are hinting at production being in the mid-40s million tonnes if the weather profile doesn’t change soon”.

 

(The USDA is at 54m tonnes.)

 

“It appears production losses are reaching levels that would only be partially offset by an increase in Brazilian production,” which has also been seen as likely.

 

Still, with soybeans feeling some headwind from the China order cancellation, it was soymeal futures which did best at surfing the Argentine concerns, soaring 4.2% to close at $357.80 a short ton for March, the highest finish for a spot contract in 18 months.

 

(Argentina is the top exporter of the soybean-derived feed ingredient.)

 

‘Limited moisture’

 

Soybeans also underperformed wheat, which jumped 3.4% to $4.64 a bushel in Chicago for March delivery, a six-month high for a spot contract.

 

Kansas City hard red winter wheat for March added 2.6% to $4.77 ½ a bushel, the second best finish in six months.

 

Benson Quinn Commodities said: “Concerns about hard red winter wheat production are increasing as current forecasts signal limited precipitation through the end of February” for the key southern Plains growing area.

 

Radiant Solutions noted that “dry weather continued across the south western Plains over the weekend, maintaining drought conditions”, although did note that there was some hope of showers next week, although “confidence is low” in the forecast.

 

In short the market was trading “weather forecasts that are currently calling for limited moisture for the US southern Plains”, CHS Hedging said.

 

And sentiment was supported by data showing that the US exported 487,902 tonnes of wheat last week, up from 429,602 tonnes the week before, and 324,794 tonnes in the same week of 2017.

 

Corn shipments dip

 

However, for corn, the US export data showed shipments falling markedly last week, to 835,131 tonnes, from 1.09m tonnes the week before, and 1.26m tonnes in the same week of 2017.

 

That took some of the momentum from the rally in the grain, which has anyway been somewhat more tentative about further headway, amid ideas of it being too early yet to risk destroying demand, and indeed incentivising too many sowings for this year.

 

Corn futures for March ended up 1.3% at $3.67 a bushel, underperforming its peers, but recording a six-month closing high for a spot contract nonetheless.

 

Cool on cocoa

 

In New York, cotton futures for May eased 0.2% to 77.45 cents a pound, as early enthusiasm faded for data showing funds had already slashed a stack of long bets in the fibre, and for a National Cotton Council survey showing a rise in US sowings this year below some other market forecasts.

 

Cocoa futures for May fared notably worse, dropping 2.6% to $2,007 a tonne, as the extent of fund buying in the contract revealed for the week to last Tuesday undermined ideas of further support to prices from short covering.

 

Hedge funds during the week hiked their net long in futures and options by 15,370 contracts, the most since 2006, as the seasonal threat of the dry Harmattan wind looms potentially for West Africa.

 

“Traders are worried about potential for the Harmattan winds to develop that can suck moisture from the soil and trees and really hurt bean quality and production,” said Jack Scoville at Price Futures.

 

“These winds have not developed as of yet, but could at any time.”

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