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Morning markets: Vegetable oil futures gain, further, on China import move

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Ags dragged into this session some buoyancy from the last, with vegetable oils particularly lively.

 

Macro-markets stabilised, after jitters on growing worries of China-US trade tensions hurting world economic growth prospects with, on share markets, the Shanghai Composite adding 0.9%, the Hang Seng ending up 0.6%, and London’s FTSE 100 nudging 0.3% higher in early trading.

 

China’s renminbi, something of a barometer of China-US relations, gained 0.2% to 7.04 per $1, while Brent crude staged a 2.4% recovery to $57.55 a barrel amid reports Saudi Arabia was considering options to stabilise prices.

 

... which left ag traders free to focus more on the sector’s big news looming on the horizon, with the prospect on Monday of what might be termed a $1bn US Department of Agriculture Wasde briefing.

 

That is, the Wasde has the potential for prompting substantial price moves, and with a 12bn-13bn bushel corn harvest at stake anything over $0.08 a bushel or so actually moves the value of that crop alone by $1bn.

 

“We think corn has the largest potential for a price move on Monday but would not be surprised if soybeans post a large move,” said Terry Reilly at Futures International.

 

‘Wants to position bearish’

 

As to where that move might go, investors have been broadly negative about prospects for the Wasde.

 

Sure, as Benson Quinn Commodities said, expectations of “lower acres and lower yield estimates have trade looking for cut to 2019-20 carryout estimates”, in particular for corn,

 

“But ample old crop carry-ins and a bearish demand outlook will soften the cuts.

 

The estimate, revealed from a Reuters poll, “for a 2019-20 corn carryout estimate of 1.620bn is not that much smaller than USDA’s outlook estimate in February of 1.650bn bushels.

 

The estimate for the US 2019-20 soybean carryout is 821m bushels, which is 26m above the July estimate.”

 

“Toss in bearish demand for US corn, soybeans and wheat, and the market wants to position bearish into the report.”

 

‘Demand more of a factor’

After all, as Karl Setzer at AgriVisor noted, “demand has been becoming more of a factor for trade over the past several weeks.

 

“Buyers have been passing over the US as a source for needs as the United States remains one of the highest-priced sources for commodities in the global market.

 

“This has prevented the market from reacting to concerns over production losses, as some of the decreased output is being offset

 

Still, others have pointed out that, if the market leans bearish into the Wasde, that means a large price reaction, if there is one, is most likely to come from a “bullish” report, which would represent the largest surprise.

 

Yet others have pointed to the large range of uncertainty heading into the report as a signal that price reaction may in fact prove relatively muted – at least with, say, a range of forecast for US corn production this year of more than 800m bushels, the Wasde figure is likely to fall within the range.

 

‘Market squaring positions’

What there is little surprise over is that many investors are retreating ahead of the potential explosion, evident in a fall in open interest in corn, soybeans and wheat futures in the last session, by nearly 20,000 lots between them.

 

Benson Quinn Commodities talked of behaviour “pretty typical session for a market squaring positions ahead of a Wasde report”.

 

And while ag market movement was upwards in early deals, consistent with covering of the short positions which have dominated recent fund bets, there was nothing too extreme in grains.

 

Corn futures, for instance, added a modest 0.1% to $4.14 ½ a bushel for December delivery as of 10:15 UK time (04:15 Chicago time).

 

Chicago soft red winter wheat futures for September nudged 0.1% higher to $4.88 ¾ a bushel.

 

China soy imports rise

Soybean futures for November did better in gaining 0.5% to $8.71 ¼ a bushel, but remaining around the centre of their August trading range.

 

Earlier on, China reported soybean imports of 8.64m tonnes last month, a rise of 8% year on year, and the highest level in 11 months, encouraged by higher crush margins.

 

The purchases will of course have come mainly from Brazil, but a decent figure will revive some hopes for Chinese soybean imports in 2019-20, with knock-on effects eventually to the US, after downgrades to the figure this week – including a lowball 80m-tonne estimate from the USDA’s Beijing bureau.

 

Stronger oils

Soyoil, meanwhile, helped by extending its winning run spurred by China’s plans to remove import quotas on it, and rival vegetable oils palm oil and rapeseed oil, with a consultation on the proposal to close on August 22.

 

(A weakened Chinese oilseed crush, in the face of meal demand weakened by the dent to hog numbers from African swine fever, has depressed domestic vegoil production.)

 

Chicago soyoil for December gained 0.9% to 28.63 cents a pound, breaking above its 10-day, 20-day, 40-day and 50-day moving averages.

 

In Kuala Lumpur, palm oil futures for October added 1.4% to 2,134 ringgit a tonne, setting a three-month high for a benchmark contract.

 

Gains were supported by worries over Indonesian dryness too, and by a close up 0.6% at 4,648 yuan a tonne in Dalian palm oil futures for January, with the January soyoil contract rising 1.1% to 5,926 yuan a tonne.

 

Data later

As for market moves later on, US export sales data for last week, due later, may have a bearing.

 

US wheat export sales for last week are expected at 250,000-500,000 tonnes, compared with 383,066 tonnes the week before.

 

For corn, sales for 2018-19 (which ends this month, as it does for soybeans) are forecast at 100,000-300,000 tonnes, with 2019-20 volumes at 200,000-600,000.

 

Last time, the figures were 143,091 tonnes and 129,608 tonnes respectively.

 

For soybeans, old crop sales are expected at up to 300,000 tonnes, with new crop at 100,000-400,000 tonnes, compared with figures of 143,088 tonnes and 305,508 tonnes respectively the previous week.

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