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Morning markets: Soymeal futures hit 18-month high, after Argentine rains 'fail to show up'

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Argentina’s dryness-challenged crops did not receive the rains expected over the weekend.

 

And that was pretty much all ag investors needed to know to start the week.

 

“We are seeing higher calls due to disappointing rains in Argentina over the weekend,” said Mike Mawdsley at First Choice Commodities.

 

Chicago futures in soymeal, of which Argentina is the top exporter, for March touched $355.60 a short ton, the highest for a spot contract in 18 months, before easing back to $353.20 a short ton as of 11:00 UK time (05:00 Chicago time), a 2.7% gain on the day.

 

That helped soybeans themselves add 2.0% to $10.02 ¼ a bushel for March delivery, a 2.0% gain on the day, jumping back well above its 100-day moving average, besides regaining the psychologically important $10-a-bushel mark.

 

Soyoil, of which Argentina is also the top exporter, but for which there are more alternatives, added 1.1% to 32.32 cents a pound, also given support from official data showing lower-than-expected stocks of rival vegetable oil palm oil in Malaysia.

 

Palm oil itself stood up 1.0% at 2.540 ringgit a tonne in Kuala Lumpur, below a high of 2,555 ringgit a tonne set earlier.

 

‘Rains did not show up’

 

The weekend rains in Argentina had been termed by many commentators as “critical” for crop prospects.

 

“While the heatwave broke on Saturday across Argentina as forecasted, the rains clearly did not show up,” said weather service WxRisk.com.

 

The rains did not develop as forecasted. This has been a seasonal trend all season long and it’s partly due to the La Nina.”

 

Nor is there much of a chance for rain in the next few days.

 

“Over the next week most of Argentina looks pretty dry with only the northern areas seeing any rains over 0.75 inches/20mm,” WxRisk.com said.

 

Fund data

 

At Global Commodity Analytics, Mike Zuzolo said that rising markets were “obviously showing a drier climate for the next seven days”.

 

The GFS weather model had turned “drier and more in agreement with European model”.

 

And, as an extra, small, support for Chicago prices, the dollar opened on a softer note, albeit falling only 0.1% against a basket of currencies, but making dollar-denominated exports a touch more competitive.

 

Signally for soymeal, data late on Friday from the Commodity Futures Trading Commission showed that soymeal was one of the few ags in which hedge funds trimmed their net long position in the week to last Tuesday.

 

This could be interpreted as creating extra scope for fresh long bets on Argentine weather worries.

 

By contrast, in soybeans funds turned more bullish (ie less bearish) in cutting their net short position by nearly 12,000 lots, to 9,978 contracts.

 

In soyoil, they cut their net short position by 13,900 contracts to 2,688 lots.

 

Revived rally

 

Corn futures gained too, adding 1.0% to $3.65 ¾ a bushel in Chicago for March delivery, with the Argentine weather worries, a support to prices too, which had looked like heading into thin air.

 

Benson Quinn Commodities noted that on Friday, “corn just ran out of steam with market overbought and farmer rewarding rally with increased selling”.

 

Water Street Solutions said that “technical trading, farmer selling and technical resistance looks to have brought a halt to the move for the time being”.

 

Still, it did acknowledge decent US export prospects too, saying that “US corn is competitively priced as we enter the peak of the export season”.

 

The improved US corn export outlook was underlined by an upgrade on Thursday to the official forecast for shipments in 2017-18.

 

‘Showers too light’

 

Soft red winter wheat futures, meanwhile, for March added 1.6% to $4.56 ¼ a bushel in Chicago, gaining support from ideas of further dryness in the US southern Plains, where drought is becoming more threatening now that the spring growing season approaches.

 

In the US Plains, “snow in northern areas will improve moisture while showers in southern crop areas will be too light to improve moisture,” said Radiant Solutions.

 

Global Commodity Analytics’ Mike Zuzolo said that the weather outlook for US hard red winter growing areas was “mostly dry” in the 10-day outlook, although for Midwest soft red winter wheat growing areas it appeared “wetter for the southern halves of Missouri and Illinois, as well as most of Indiana and Ohio” growing areas.

 

Kansas City hard red winter wheat indeed fared better, adding 1.8% to $4.73 ¾ a bushel for March delivery.

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