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Morning markets: Can soybean futures notch up a 9th successive gain?

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Trading sessions in soybean futures have started going around in gangs.

 

That is, over the last month or so, price moves have followed the direction of the previous session, with only one exception.

 

(Fittingly, that exception was the first session of February when the spot March soybean contract reversed higher, in line with the idea that a new month brings new money to grains.)

 

But the overall tally since mid-January runs to nine successive negative sessions, in which the March lot shed a total of $0.57 ¼ a bushel (6.2%), followed by a gentle recovery, which has seen eight successive positive sessions regain $0.20 a bushel (2.3%).

 

‘Exploding’ death toll

Whether the contract can manage a ninth positive close, keeping by its record of winning every trading day in February, well, it was not a help that Thursday was a bit of virus on/risk-off day in financial markets.

 

The optimism around in the last session that coronavirus was on the back foot faded after, using a new method of diagnosis, China’s Hubei province, the epicentre of the outbreak, reported 14,840 new cases as of February 12, up from 1,638 new cases the day before.

 

The number of deaths in the province rose by 242, a record for a single day, to 1,310.

 

“The figures for the number of deaths are exploding,” said Agritel.

 

Shares, oil fall

Asian shares did not follow the gains in US ones, which set fresh records on Wednesday, with Shanghai stocks shedding 0.7%, and Hong Kong ones 0.3%, although Tokyo’s Nikkei index eased a modest 0.1%.

 

London shares traded 0.9% lower in early deals, and Frankfurt ones 0.5%.

 

Among commodities, Brent crude lost 0.8% to $55.34 a barrel, while the safe haven of gold gained 0.6% to touch $1,575 an ounce.

 

Oils dip

Nor were ags strong, although the Bcom ag sub index was showing a relatively modest 0.2% lower as of 09:30 UK time (03:30 Chicago time).

 

Soybean futures for March were in fact flat at $8.92 ½ a bushel at that point.

 

This despite pressure from soyoil, which tumbled by 1.2% for March to 30.66 cents a pound, in turn weighed by palm oil, which slumped by 2.4% to 2,643 ringgit a tonne in Kuala Lumpur, putting in another test of its 100-day moving average on a continuous chart.

 

This level has already held three times in the past two weeks. Will it do so again?

 

China sentiment u-turn

Palm oil has been notably vulnerable to China coronavirus talk, in part because the country is a huge importer, but also because the vegetable oil is used largely in making biodiesel.

 

This in turn makes palm oil futures sensitive to changes in crude oil values, which have been especially susceptible to virus worries.

 

Moreover, palm oil had gained, a touch, in the last session on hopes of improved Chinese demand, with Agritel flagging “hopes of a relaxation between China and [second-ranked exporter] Malaysia over restrictions on palm imports”.

 

‘Global tenders increased’

Back to soybean futures, and these did find some support from soymeal, the other main bean processing product, which for March nudged 0.1% to $292.00 a short ton.

 

Besides helped by spreading against soyoil – short oil/long meal bets, or vice versa, are a common trading strategy – there has also been talk of a demand from importers for US supplies, at a time after all when top exporter Argentina is seeing its supplies crimped by financial woes at leading crusher Vincentin.

 

“Global tenders increased especially in soybean meal and corn,” said Terry Reilly at Futures International, noting a string of meal purchases by South Korean buyers.

 

Still, whether US export sales data later for last week will show up decent demand…

 

Investors are expecting soymeal export sales at 125,000-400,000 tonnes, with those for soybeans themselves at 600,000-1.00m tonnes, compared with 703,835 tonnes last time.

 

Traders will watch particularly closely of course for signs of demand from China, with some talk of new crop purchases from the US this week, although South America seems to have been taking the lion’s share of orders, as is typical at this time of year when the harvest there is ramping up.

 

Demand dynamics

For corn, US export sales last week are expected to show at 700,000-1.20m tonnes, compared with 1.25m tonnes last time.

 

Whatever, it will take a series of strong weeks to get investors excited, after a dismal start to 2019-20 for US corn export orders, with worries over demand for ethanol too, despite the US Department of Agriculture earlier this week upping its forecast for use of corn in making the biofuel in 2019-20.

 

Data for last week, realised on Wednesday, showed US ethanol output last week down 48,000 barrels a day at 1.033m barrels a day.

 

“Last week’s corn usage of 102.97m bushels was well below the 106.14m bushels that needs to be averaged to meet USDA’s most recent demand estimate” for the full season, said Benson Quinn Commodities.

 

US ethanol stocks, up at 24.358m barrels “the fourth highest on record… are reflecting poor export demand”.

 

Against coronavirus worries too, and weakness in oil markets, Chicago corn for March stood 0.3% lower at $3.81 ¾ a bushel.

 

‘Quality threat’

Chicago soft red winter wheat for March did better, in gaining 0.2% to $5.83 ¾ a bushel - which was enough for the lot to regain the small premium over the May lot which it lost in the aftermath of Tuesday’s USDA Wasde briefing.

 

US wheat export sales data later, for last week, are seen at 300,000-650,000 tonnes, likely improving on the 338,559 tonnes the week before, amid some flurry in tenders by importers.

 

CHS Hedging noted “the emergence of bargain buyers after recent price losses”.

 

Terry Reilly also reported support for prices from “heavy rains forecast for the US Southeast”, which are “thought to threaten the quality of the winter wheat crop” in that soft red-growing area.

 

Kansas City hard red winter wheat, as grown in the Plains, for March shed 0.4% to $4.69 ¼ a bushel.

 

‘Strong data in the offing’

In New York, cotton – also, as a large Chinese import, and an industrial commodity sensitive to coronavirus talk – shed 0.5% to 68.23 cents a pound for March, dropping below its 50-day moving average as regained in the last session.

 

Still, there is hope for bulls from the USDA export sales data later.

 

“There is again talk of another round of strong export data in the offing for tomorrow,” said Louis Rose at Rose Commodity Group.

 

“And, an analysis of pertinent data would suggest that such is the case.”

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