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Morning markets: Are funds still interested in buying soybeans?

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Soybean futures still aren’t straying far.

 

Despite reports that China is allow up to 10m tonnes of tariff-free imports of US supplies of the oilseed, soybean futures stood up 0.2% at $9.35 ¾ a bushel for November delivery, as of 10:00 UK time (04:00 Chicago time).

 

This after 0.1% headway, ultimately, in the last session (although the reports initially prompted a 1.3% gain).

 

Still, as Terry Reilly at Futures International said, the “question that remains is how much US soybeans will they need”, especially when there is talk that Chinese importers have been busy purchasing in Brazil.

 

“Up to 25 cargos might have been purchased from South America over the last week and half.”

 

‘Needs confirmation of business’

As Benson Quinn Commodities put it, “considering the funds are long beans, the trade needs confirmation of business”, ie some tangible proof of Chinese demand for US exports.

 

Expect an even bigger focus later on whether the US Department of Agriculture issues, through its daily alerts system, an announcement of US sales of soybeans to China.

 

“Price action of the last couple of days indicates that the fund community is going to have to see something tangible to commit to trading above resistance between $9.45-9.48 a bushel.”

 

Fund behaviour

Still, the good news for bulls is that hedge funds, having in the week to October 1 gone long in Chicago soybean futures and options for the first time since June could prove reluctant to turn tail and sell again.

 

“Recall managed funds-maintained a near-continuous running soy short since mid-June of 2018,” said Richard Feltes at RJ O’Brien.

 

“Their recent shift to a soy long is now extending into its third week.

 

“The last time managed funds shifted out of short to a long position was in early February of 2018”, after which they “stayed long for 16 weeks”, Mr Feltes said.

 

“Therefore, it is reasonable to assume that managed funds will continue to build upon their modest long into year-end,” a timetable which would too “allow their traders to access the status of the South American soybean crop” currently being seeded, and set for harvesting early in 2020.

 

(In fact, hedge funds did trade briefly back from net short into net long positions in December 2018 and February 2019 too, although to be fair with less conviction, and from less significant net short levels.)

 

Sixteen-month high

In fact, there has been more excitement elsewhere in the oilseeds complex, with Kuala Lumpur palm oil futures for January, for instance, touching 2,359 ringgit a tonne at one point - the highest for a benchmark contract since June last year.

 

While the contract then eased to 2,347 ringgit a tonne, that remains up 1.3% on the day.

 

The headway comes despite the continued furore over comments by Mahathir Mohamad, Malaysia’s prime minister, that India had "invaded and occupied" Kashmir.

 

Kashmir controversy

The comment prompted the Solvent Extractors’ Association of India earlier this week to ask its members to stop buying Malaysian palm oil.

 

India is the top vegetable oil importer, and Malaysia the second-ranked exporter of palm oil, after Indonesia.

 

Still, of reassurance to Malaysian exporters is that an import tariff raise had already undermined expectations of shipments to India.

 

Meanwhile, in China, another large edible oil importer, palm oil futures for January soared 1.9% to 4,928 yuan a tonne on Wednesday, offering support from that origin.

 

Trudeau boost

Elsewhere in the oilseeds complex, Winnipeg canola proved more sluggish, adding just Can$0.10 to Can$462.20 a tonne for January, although this after a slightly more exertive 0.5% gain in the last session.

 

“The market liked Canada’s incumbent prime minister [Justin Trudeau] winning another term in office,” said Tobin Gorey at Commonwealth Bank of Australia.

 

“His victory makes a USMCA,” ie the Nafta replacement trade deal, “being concluded more likely.

 

“And that might provide more avenues for Canada’s canola to find its way onto the world market.”

 

‘Slow harvest pace’

Also playing out, negatively, in the canola market are ideas of Canada’s harvest finding renewed vigour, after wetness and snow delays.

 

This is something of a factor (although waning, with harvest nearly done, and what crop is left likely of poor quality) in the US too, for spring wheat, which eased by 0.1% to $5.38 ½ a bushel in Minneapolis for December.

 

Chicago soft red winter wheat, the world benchmark, fared better, adding 0.7% to $5.21 ½ a bushel for December delivery, receiving support from worries that slow US corn and soybean harvests may hamper some seedings of the grain.

 

“The slow harvest pace of corn and soybeans could hinder winter wheat plantings across the Midwest, resulting in a soft red winter wheat area of around 5.2m acres, nearly unchanged from 2019,” said Terry Reilly at Futures International.

 

The broker cut to 31.750m acres, from around 32.2m acres, its forecast for US winter wheat sowings for the 2020 harvest.

 

On the demand side, Algeria announced a chunky purchase of 600,000 tonnes wheat at its latest tender, with France seen as a likely origin for much of this.

 

‘Could limit the upside’

Chicago corn futures for December were up 0.2% at $3.88 ¾ a bushel.

 

“Question remains what will the crop yield that was planted in June,” said ADM Investor Services.

 

“Supply bulls still feel corn futures could eventually trade over $4.00 for December due to a lower US supply.”

 

However, the “fact that Black Sea and South America corn prices are a discount to US could limit the upside in prices”.

 

The broker noted almost market talk that China may have approved tariff-free imports of US corn too.

Chinese import data

Separately, Chinese customs data showing imports of corn last month up 237% year on year to 140,000 tonnes, taking total imports for 2019 to 3.87m tonnes, up 33% year on year.

 

Pork imports, at 161,836 tonnes for September, were up 72% year on year, with the cumulative 2019 total at 1.33m tonnes, a gain of 44%.

 

Sugar imports for last month were up 123% at 420,000 tonnes, to take the 2019 total thus far to 2.39m tonnes, up 22% year on year.

 

Barley, sorghum and wheat shipments are running lower year on year for the January-to-September period.

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