Investors just can’t seem to get enough of the oilseeds complex.
On China’s Dalian exchange, soybean futures for May gained 1.0% to 5,976 yuan a tonne, setting the highest close ever (on data going back to 2002) for a nearest-but-one contract.
And they weren’t travelling alone. Soymeal for May gained 1.7% to 3,586 yuan a tonne, while soyoil for May added 1.3% to 8,532 yuan a tonne, 4 yuan from matching an eight-year closing high for a nearest-but-one contract.
Palm oil added 1.7% to 7,438 yuan a tonne, a fresh contract closing high, and now up 8.1% since before China two weeks ago went on its lunar new year holiday break.
Performances on other markets could not match these, at least in early deals. In fact, palm oil shed 0.5% to 3,657 ringgit a tonne in Kuala Lumpur for May delivery as of 10:40 Uk time (04:40 Chicago time), although is till up 3.9% for this week.
The decline came despite a further rise in Brent crude, which added 0.5% to $65.72 a barrel in early deals, so boosting prospects for values of commodities such as vegetable oils used in making biofuels.
The Malaysian Palm Oil Council issued some data which, on the face of it, appeared upbeat too, pegging Malaysia’s output this year at 19.6m tonnes, up some 500,000 tonnes year on year, but below forecasts from some other commentators.
Malaysia’s exports were forecast rising by 10% year on year.
However, in Chicago soyoil extended its rally, adding 0.3% to 48.51 cents a pound for May delivery, setting a fresh seven-year high for a second-in contract.
That helped soybeans themselves for May gained 0.4% to $14.14 ¾ a bushel.
Meanwhile, Winnipeg canola recorded another record high, adding 1.3% to Can$841.70 a tonne for the spot March contract, and 0.5% to Can$779.90 a tonne for the better-traded May lot.
And in Paris, the May rapeseed contract gained 0.2% to E472.75 a tonne, earlier touching E474.00 a tonne to match the highest for a spot lot since April 2013.
‘Not enough rationing’
As for the reason, in short, “aggressive rallies in all global veg oils indicate that not enough demand has been rationed,” said Benson Quinn Commodities.
… with the stress on vegoils helping particularly those oilseeds, such as canola/rapeseed, which when crushed give relatively high yields of oil as opposed to meal, which soybeans favour.
(That said, soymeal for May gained 0.6% to a historically elevated $428.50 a short ton in Chicago.)
Agritel noted “very sustained demand, particularly from China”.
The idea of demand rationing being required reflects not just the recovery in consumption from last year’s Covid-induced lows, but also a range of output threats.
“Prospects for the rapeseed harvest for the next season remain gloomy in Europe, and in Ukraine, where autumn sowing was carried out under very difficult conditions,” said Agritel.
While Ukraine’s “plantings of winter rapeseed last autumn turned out noticeably higher than some in the market had feared, they still declined by more than 20% on the year to 1.0m hectares”, Oil World reported.
Meanwhile, European Union “rapeseed production may be limited to 17.6m tonnes in 2021, keeping import requirements high next season,” the analysis group added.
‘Concern about early yields and disease’
And then there are the worries over South American soybean production, which appear to be waxing again as rains slow Brazil’s harvest while dryness appears to be re-emerging in Argentina.
“Brazil soybean harvest is near 15% done,” ie the slowest in a decade, noted Steve Freed at ADM Investor Services, flagging too “concern about early yields and disease”, talk of which is also growing (although should be treated with care at this stage).
Meanwhile in Argentina, “weather forecasters expect a more challenging period,” said Tobin Gorey at Commonwealth Bank of Australia.
“The area round the border conjunction of Buenos Aries, Santa Fe and Cordoba has been trending drier for almost a week. Weather forecasters expect little or no rain in this region for another week or so.
“Moreover, temperatures are likely to rise to high levels,” he said, adding that “depleted soil moisture would likely create some crop stress”.
‘Funds, not fundamentals’
Terry Reilly at Futures International added that “Argentina will see heat and net drying that could put a damper on recent upward revisions to crop production estimates by some analysts”.
And he flagged simple pressure from cash as supporting prices too, noting “fund and option buying” in soyoil in the last session.
“Much of [soyoil’s] leadership is driven by funds, not fundamentals,” Mr Reilly said.
Mr Gorey, meanwhile, noted threats to Brazilian supplies, with reports that “some growers are reneging on contracts to deliver soybeans to traders.
“Seems these deals were struck at considerably lower prices, so this looks like a bit of price majeure.”
‘Taking some of the gloss off’
Some of the strength spilled over into corn too, which faces the same challenge in terms of the test from Argentine dryness.
Chicago corn futures for May added 0.1% to $5.53 a bushel.
Mr Gorey noted that “a sag in US ethanol production is taking some of the gloss off strong corn demand from elsewhere,” although more on output of the biofuel will be known with weekly US data later.
“Prices could then find resistance if US 2021 planting season is normal and South America improves on exports,” Mr Freed said, although noting cause too for support for values from the likes of Brazil’s slow safrinha crop sowings.
Wheat futures, meanwhile, added 0.3% to $6.72 ¼ a bushel for May, continuing to adjust to the latest ideas about damage, or not, to northern hemisphere winter crops from cold.
“Weekly USDA winter wheat crop ratings did not drop as much as feared,” said Mr Freed.
However, “concern about EU and Russia wheat supply offers support” to prices, with some worries over cold damage, plus also over Russia’s export tax and thin EU stocks left over after a disappointing 2020 harvest.
Agritel added that “a cold spell in the Black Sea basin has to be closely monitored, particularly with regard to the potential for future wheat production in this area”.