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Morning markets: Is China's splurge on US soybeans past its best?


The China support which has been such a factor in the grain price gains of late is now not looking so secure.


The renminbi eased, by 0.2% in early deals on Wednesday, to take itself a touch further from the 16-month highs against the dollar set last week, and softening the buying power of the currency of the key ag importer.


Prices of Chinese ag futures tumbled. Dalian soyoil for January dropped 2.3% to 7,116 renminbi a tonne, now down 3.8% in two sessions. Soybeans themselves for January dipped by 0.7% to 4,502 renminbi a tonne.

January palm oil slid 2.5% to 6,130 renminbi a tonne, taking to 5.0% its two-session slump.


Corn for January shed 1.1% to 2,444 renminbi a tonne.


Autumn watershed?

And the worry is that this might be more than a passing thing, with ideas that the imminence of the country’s Mid-Autumn Festival/Golden Week holiday, as starts on October 1, might bring a slowdown in buying which has replenished stocks.


After the holiday, will Chinese buyers return to the US, or will it mark a watershed, as they look to the start of 2021, which will bring Brazil back to its period of seasonal dominance, in terms of soybean exports?


“Coming back from Golden week holiday, Brazil crop size and weather will be more and more scrutinised, with key new China soybean demand for January and then late summer coming from the size of the Brazilian crop and timing of harvest,” said Benson Quinn Commodities.


At least bulls can clutch for hope to the dry start to Brazil’s soybean sowing window, which could at least mean a late harvest and delayed start to the country’s early-2021, whether or not a smaller-than-expected crop.


In fact, “it is very early in the 2021 planting campaign for anyone to adjust their production estimate from the record 133.0m tonnes by the US Department of Agriculture, but it will be next thing for markets,” Benson Quinn Commodities said.


‘A cold reminder’

Also gaining increasing investor attention is the prospect next week of the end of quarter and end of month, a time associated with fund withdrawal of cash – which, given the extent of long bets hanging around in ags could be a negative of prices.


Furthermore, September 30 will bring quarterly data on US grain stocks, the prospect of which is being viewed by some commentators as a negative for prices.


Leese Group, thinking in particular of corn, said that the data would act as “a cold reminder that the projected new crop carryout remains historically large”.


On top of this, as Karl Setzer at AgriVisor noted, “harvest is more of a market topic as progress is being made across the US,” and generally seen as a negative for prices, in bringing extra supplies and allowing the removal of the last of the risk premium.


‘Slowing Argentina crush rates’

Against this backdrop, Chicago corn futures for December stood down 0.5% at $3.67 ¼ a bushel as of 10:15 UK time (04:15 Chicago time), looking for a third successive negative close.


… as were November soybean futures, down 0.5% at $10.14 ¾ a bushel, earlier finding some support at their 10-day moving average, just below $10.10 ½ a bushel.


The oilseed had some support from soymeal, which added 0.2% to $341.50 a short ton, amid fresh concerns over depressed production of the feed ingredient in Argentina, the top exporter, where farmers are hoarding their soybeans as a hedge against inflation and currency weakness.


In fact, Terry Reilly at Futures International, noting a “slowing Argentina crush rates and lack of Argentina producer selling”, also flagged talk of the country introducing a more generous exchange rate (than the official one) in an effort to loosen farmers’ hold on crop.


“Latest Argentina rumour was that the government is looking into making a special peso rate for farmers (idea somewhere between black and blue rate) in order to encourage farmers to put beans into the system.”


Still, soyoil futures for December dropped 1.2% to 33.19 cents a pound, weighed by the poor Dalian performance, which had particular resonance in Kuala Lumpur, where palm oil for December slumped by 2.8% to 2,873 ringgit a tonne, and is now down 6.7% this month.


Wheat resistance

In New York, cotton, also dependent largely on China demand, followed fellow row crops lower, shedding 0.2% to 65.42 cents a pound for December.


But back in Chicago, in soft red winter wheat it was bears’ turn for a shot in the market’s game of price ping pong, and indeed the December lot fell as far as 1.2% in early deals, before recovering most lost ground to stand at $5.56 ¾ a bushel, down just 0.2% on the day.


The market, while dragged lower by rival corn, is less exposed to China import demand, and indeed from a technical perspective found important support at its day low just below which the 10-day and 20-day moving averages stand.


There remains plenty of talk too of the higher Russian prices shown at Tuesday’s Gasc tender, and indeed the dryness testing sowings in much of the former Soviet Union.


‘Cause for concern’

“Winter wheat planting conditions remain a cause for concern, particularly in the Black Sea basin where the optimum planting period touches its middle,” said Agritel.


“The water deficit remains, and the weather forecasts for this region do not seem to bring any particular relief.”


“Weather forecasters continue to extend the dry period in winter wheat areas of Ukraine, Russia and Kazakhstan,” said Tobin Gorey at Commonwealth Bank of Australia, adding that this was “certainly a worry for the region’s winter wheat crops”.


Steve Freed at ADM Investor Services said that “west Ukraine could see rains next week but east Ukraine and most of Russia look to remain dry”.


‘Promising change’

Still, Agritel also noted that while in the European Union dryness was also a big worry for French winter grains, there was “a promising change in the weather” due.


Certainly, in the UK, a dry spell has broken on Wednesday. The question now, of course, is whether, unlike last year, the rains will stop…

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