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Evening markets: Soybean futures reverse - despite soymeal resilience

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There was bad news and bad news for grain bulls.

 

The first bit of bad news was that soybean futures lost their buoyancy, ending down 0.5% at $10.02 ¾ a bushel in Chicago for January delivery (although, crucially, staying above the psychologically important $10-a-bushel mark).

 

The second setback was that this did not trigger a revival in wheat futures.

 

While there has been talk of wheat’s weakness being fuelled by long soybean-short wheat bets, the reverse did not work on Wednesday.

 

In fact, wheat futures for March tumbled 1.7% to $4.25 ¼ a bushel in Chicago, setting a fresh contract closing low.

 

It is worthy of note that the December lot, while little followed now, being close to expiry, ended down 1.9% at $3.98 ½ a bushel – closing below $4 a bushel for the first time in 2017, on a spot contract basis.

 

‘Cereals are under pressure’

 

But markets struggled on Wednesday against official Canadian crop estimates which on the two most important counts for international markets – wheat and canola – trounced traders’ expectations.

 

The estimate of a 30.0m-tonne wheat crop was 2.0m tonnes ahead of market forecasts (and 3.0m tonnes ahead of the US Department of Agriculture estimate).

 

“With the release of new Stats Canada numbers this morning all wheat turned sellers,” said Benson Quinn Commodities.

 

“Cereals are under pressure following the release of StatsCan Canadian production reports,” said CRM AgriCommodities, noting that the revised estimate will mean “greater exportable volumes available” than had been thought.

 

With Canada a producer in particular of spring wheat, Minneapolis spring wheat futures fared worst, ending down 2.0% at $6.13 ¾ a bushel for March delivery.

 

As an extra setback to wheat prices, the rouble weakened 0.8% to return back above 59 to $1, making Russia’s huge exportable surplus that much more competitive.

 

Oils slip

 

For oilseeds, the primary hit from the StatsCan data, showing Canada’s canola output at a record 21.3m tonnes, 1.1m tonnes ahead of the figure traders expected, was felt in the canola market.

 

That said, Winnipeg canola futures for January, in ending down 0.4% at Can$507.60 a tonne, ended well above an intraday low of Can$304.10 a tonne, the weakest in six weeks.

 

In Chicago, soyoil felt the brunt (canola is an oil-heavy oileeds, unlike soybeans, which produce more meal when processed), having already been weakened by a tumble in prices of rival palm oil in Kuala Lumpur, where the benchmark February lot closed down 1.1% at 2,535 ringgit a tonne, a four month closing low.

 

Soyoil for January ended down 1.0% at 33.17 cents a pound.

 

‘Stress will continue’

 

And that in turn weighed on soybeans, even if prices of soymeal, the other soybean processing product, eased only a modest 0.2% to $342.30 a short ton, appearing to indicate that worries over Argentine dryness remain live.

 

Soymeal has proved the most sensitive indicator to such concerns, with Argentina being the top exporter of the high protein feed ingredient. (While Argentina is the biggest soyoil exporter too, consumers are more alternatives for this.)

 

And, indeed, forecasts are hardly too reassuring.

 

“Rains by Saturday will be too light to significantly improve moisture, and stress will continue on corn and soybeans in northern areas,” said MDA.

 

Richard Feltes at RJ O’Brien said that “weather leans positive” for prices, with a “5% cut in Argentine 5 day precipitation coverage and mid-high 90s Fahrenheit temperatures for early next week”.

 

‘Crop ratings are declining’

 

Argentina’s weather indeed poses a threat to corn output too.

 

“Dry conditions have slowed corn planting,” Mr Feltes said, flagging the potential for a continuation of the these condition to shift “intended acres from corn to beans with the latter registering better profitability.”

 

He added: “Crop ratings are declining,” leaving producers “who seeded into dry soils increasingly concerned”.

 

Still, with ample US supplies, the corn market has yet to ignite to the Argentine weather as soybeans have, with March corn futures ending down 0.4% at $3.52 ¾ a bushel.

 

This despite too strong US ethanol production data, up 42,000 barrels a day to a record 1.11 barrels a day last week.

 

‘Major negative factor’

 

Soft commodities were broadly lower too, although New York for March managed gains, adding 0.3% to 72.72 cents a pound, amid worries over a bollworm attack on India’s crop, and with worries over the quality of US cotton too. cotton

 

But raw sugar for March plunged 3.0% to 14.45 cents a pound in heavy trading volumes,

 

“The lack of demand against ideas of big world production remains the major negative factor,” said Jack Soville at Price Futures, adding that from a chart perspective, “the market has been fading against resistance areas for the last week.

 

Prices might “need to correct a bit more before resuming any rally attempt”.

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