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Morning markets: Grains start this week as they finished the last. But...

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Just how much ag product is China buying? And from where?

 

These questions remained live on grain markets to start the week, even as futures started as they left off on Friday, with vegetable oils in most demand.

 

It is not as if, after all, the headway in Dalian corn futures has ceased, with the September contract there adding a further 1.2% to 2,183 yuan a tonne, the best finish for a spot lot since September 2015.

 

Mike Zuzolo at Global Commodity Analytics, noting a recovery in importer demand for US ags “as if Covid-19 was a short-term feature”, flagged the role of China in the revival – and the incentive provided by the age-old market drivers of greed and fear.

 

“Greed from a standpoint that the price is unlikely to get any lower than it is. And Fear from a standpoint that the supply of the commodities being bought currently aren’t going to be as ample in the foreseeable future.”

 

‘Still pinned on Chinese demand’

US-based Benson Quinn Commodities said that “support for corn and soybeans [prices is] still pinned on Chinese demand.

 

“Talk China has booked 30 some Brazilian bean cargos in the last couple weeks in addition to what they have been picking up here, adds questions about how much will be enough.”

 

“Do they have fears over availability if Covid shutdowns slow logistics from suppliers, are they making a concerted effort to hit phase one targets,” ie commitments made in the US-China trade deal signed in January,

 

“Or is the price just viewed as favourable? Probably some mixture of all the above.”

 

Buying from Brazil

Steve Freed at ADM Investor Services reported that “recent China buying of US/Ukraine corn raised talk of their corn supply.

 

“This week China also began to buy Brazil 2021 corn.”

 

In fact, “with more Brazilian corn being harvested as their secondary corn crop is at 50% harvested, you wonder if China fills future needs buying Brazilian corn just as they do with soybeans,” said Sean Lusk at Walsh Trading.

 

Hefty flood losses?

That said, there could be a lot of Chinese import demand to meet – especially given that the country has sold some 32m tonnes of corn from state reserves over the two months, yet still futures are at their highest in nearly five years.

 

There were ideas of another Chinese corn production shortfall even before the latest flooding which has affected many major agricultural producing areas.

 

“The trade in my view is concerned that flooding in China could reduce production there to a sizable 10m-15m tonnes,” Mr Lusk said.

 

Mr Freed summed up that “recent China buying US corn and lack of farmer selling offers support” to prices.

 

“Most of the other news in corn continues to offer resistance.”

 

Midwest weather

It was actually the “other news” that held sway in early deals, and the production side, and in particular US Midwest weather.

 

“Weekend temperatures were at or below expectations with only modestly above-normal temperatures in the week ahead,” said Richard Feltes at RJ O’Brien.

 

Maxar reported that “weekend rainfall was near expectations, with showers favouring eastern South Dakota, western Kansas, Minessota, central Iowa, eastern Missouri, Illinois, Wisconsin, northern Indiana, and Michigan”.

 

This week “rains in western areas continue to improve moisture”, although dryness is “to persist in northern Indiana and northern Ohio due to lighter activity there”.

 

As on Friday

With Brent crude lower too, down 0.7% at $42.83 a barrel, undermining market conditions for biofuel feedstocks, Chicago corn futures for September stood 0.6% lower at $3.31 a bushel as of 10:00 UK time (04:00 Chicago time).

 

The December lot shed 0.7% to $3.37 ½ a bushel, although with one eye still on the potential for another hefty Chinese purchase of US corn, after the 1.37m tonnes in orders announced on July 10, and 1.76m tonnes on July 14.

 

Soybeans as the last session fared better, gaining 0.4% to $9.01 ¾ a bushel for August delivery, while the September lot added 0.4% to $8.95 ¾ a bushel.

 

As in the last session too, vegetable oils offered support, with Chicago soyoil for August gaining 1.2% to 30.28 cents a pound, hitting a five-month high for a spot contract.

 

The lot rose above its 200-day moving average for the first time in five months too.

 

Palm up

Kuala Lumpur palm oil for October gained 1.6% to 2,657 ringgit a tonne, also hitting a five-month high, with ideas of demand from China, the world’s second largest importer, a factor here too.

 

Dalian palm oil futures for September soared 2.9% to 5,532 yuan a tonne.

 

Meanwhile, the Malaysian Palm Oil Association said that Malaysia, the second-ranked producing country, is losing up to 25% of its potential palm yield thanks to a labour squeeze spurred by coronavirus – a shortage that is expected to worsen.

 

‘Penalising factor’

Chicago soft red winter wheat, meanwhile, as on Friday fell, but not by much, easing 0.3% to $5.33 a bushel, weighed by rival grain corn.

 

Mr Feltes highlighted a forecast that stressful heat for Russia’s spring wheat crop “eases this week”.

Also as on Friday, Kansas City hard red winter wheat (HRW) managed a pretty flat performance, in fact unchanged at $4.48 ¾ a bushel for September, recovering a bit of its unusually large premium against Chicago wheat, amid ideas that US exports (of which HRW is the major one) may be coming more into contention.

 

For the EU, after all, the “firmness” of the euro is a “penalising factor for export activity”, noted Agritel – with a disappointing ongoing EU harvest hardly helpful either.

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