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Evening markets: Soyoil soars, on hopes for US biofuels boost

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Soyoil futures have had a habit over the last couple of months of price jump, followed by more gentle declines.

 

It chalked up another spikelet on Thursday, with the Chicago December lot closing up 2.3% at 29.89 cents a pound, leaping back above its 50-day moving average.

 

The gain was attributed to expectations that President Donald Trump’s administration is poised on Friday to announce a deal to boost the US biofuels sector, which claims to have been badly undermined by a spree of waivers handed to refineries exempting them from blending mandates.

 

Soyoil is a key biofuels feedstock, as the key source of biodiesel in the US.

 

Dwindling inventories

Indeed, the announcement comes at a time when use of US soyoil is already firm, with US Department of Agriculture data earlier this week showing US inventories of the vegetable oil at 1.81bn pounds at the close of August.

 

That was down 234m pounds month on month, despite a fall of only 40m pounds in production, to a still relatively high 2.05bn pounds.

 

The USDA has estimated US use of soyoil in making biodiesel at 8.10bn pounds in 2018-19, a jump of 13.5% year on year, with a further 6.2% expansion, to 8.60bn pounds, expected this season.

 

‘Early-winter storm’

It was helpful too that Canadian production of canola, a rival source of vegetable oil, is under threat from a harvest slowed by rains and snow.

 

Top growing province Saskatchewan estimated its canola harvest as of Monday at 24% complete, less than half the 52% reaped a year ago, which was itself a slow year.

 

The five-year average progress is 70%, on Agrimoney calculations.

 

And with the real wintry weather only arriving at the weekend, progress may hardly have advanced much since.

 

In the week to Monday, “an early-winter storm slowed down most harvest operations in the province,” Saksatchewan officials said.

 

“However, producers were able to make some progress before the storm hit.”

 

Canola futures themselves for November traded up 0.9% to Can$459.60 a tonne in late deals in Winnipeg, setting a three-month high.

 

Bumper exports

Soymeal, by contrast, the other major product of soybean crushing, ended down 0.9% at $302.90 a short ton for December, undermined by spreading against soyoil.

 

Soybeans themselves for November ended down 0.2% at $9.11 ¾ a bushel, albeit staying just above their 200-day moving average, with the decline coming despite some decent news on US export demand.

 

The USDA announced US soybean export sales last week at 2.08m tonnes, a figure ahead of market expectations of 900,000-1.40m tonnes, and termed “excellent” by Terry Reilly at Futures International.

 

‘China is holding up their end’

The figure was boosted by 1.56m tonnes in sales to Chinese importers, who were revealed in a separate USDA, daily announcement to have purchased a further 252,000 tonnes of US soybeans, and 130,000 tonnes of US white wheat on top.

 

“In terms of goodwill,” amid the tortured US and Chinese move towards a trade agreement, “it seems China is holding up their end of the deal”, Benson Quinn Commodities said.

 

On the negative side for soybean prices, weather is improving in the key Brazilian soybean-growing state of Mato Grosso, where dryness had held up early sowings.

 

“Showers over the past week in Brazil… have continued to gradually improve soil moisture in Mato Grosso,” Maxar said, adding that “rain over the next week is expected to continue in Mato Grosso and may increase a bit in Goias, favouring germination of soybeans”

 

That said, “rainfall is expected to remain below normal in south central Brazil”, and heading into mid-October,”drier weather is expected across Brazil… which will allow dryness concerns to expand in most areas outside of Mato Grosso”.

 

‘Enhanced frost risk’

Chicago corn futures performed a little bit better, edging 0.1% higher to $3.88 ¾ a bushel.

 

US export sales data for last week, at 562,600 tonnes, were hardly much to write home about, if falling within the range of market expectations of 400,000-800,000 tonnes.

 

Still, on the weather front, CHS Hedging noted that in the US “there is a forecast calling for frost by October 11 for Minnesota, Iowa, Wisconsin”, including a big chunk of corn-growing (as well as soybean-growing) area.

Richard Feltes at RJ O’Brien said that “weather leans friendly” for prices, with an “enhanced frost risk late next week across one third of the north west Midwest,” although noting that this was “7-10 days later than normal” for a first freeze.

Weather tests

Wheat, meanwhile, eased by 0.1% to $4.88 ¾ a bushel for Chicago’s December soft red winter wheat contract.

 

US wheat export sales data last week, at 328,500 tonnes, weren’t great, although within the range of market expectations of 200,000-600,000 tonnes.

 

But dryness threats remain to some crops, with Mr Feltes noting that “95% of Australia wheat is under stress and half of Argentine wheat”.

In the US itself, dryness continues to harden in Texas, a significant winter wheat growing state, where seedings are in progress, and where 68.3% of the state is rated “abnormally dry” (or worse) up 3.1 points week on week.

 

Still, in Oklahoma, the figure is a more modest 28.1%, up only marginally week on week, and in the top wheat-growing state of Kansas flat at 18.7%.

 

Export support

Where Texas weather could prove more significant is for cotton, with the state producing roughly one-half of the US crop of the fibre.

 

And cotton futures indeed extended their recovery trend, adding 0.4% to 61.60 cents a pound in New York for December delivery, although ending well below an early high of 62.91 cents a pound, which took the lot to the threshold of its 100-day moving average, which it hasn’t touched for five months.

 

US export sales data for last week, at 177,837 running bales for upland cotton, were the best in seven weeks, and rated by Louis Rose at Rose Commodity Group as “neutral to somewhat supportive” for prices.

 

The data “should help defend the 60.00 cents level”.

 

Grounded coffee

Also posting gains among New York softs was arabica coffee, which for December delivery added 1.4% to 102.05 cents a pound, although failing earlier in an effort to break above its 100-day moving average, at 102.97 cents a pound.

 

It was some help that the International Coffee Organization cut by 908,000 bags to 4.05m bags its estimate of the world production surplus in 2018-19, as finished last month, reflecting in the main a cut to the arabica output estimate.

 

Furthermore, Carlos Augusto Rodrigues de Melo,the head of Brazilian coffee cooperative giant Cooxupe flagged quality losses to the 2019 crops from rains which knocked ripe fruit from trees.

 

“More than 25% of this year’s production was harvested straight from the ground,” he said, adding that this had boosted the proportion of lower-grade beans in the harvest.

 

“The longer the coffee is on the ground, the lower quality it has.”

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