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Morning markets: Vegoil futures prove resilient, as grains slide on rains

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If early deals had a familiar ring to them – strong vegetable oils, weaker grains – that was not for a lack of any fresh themes.

 

Yes, there was some news to cheer further the hearts of vegoil bulls, with cargo surveyor data showing a slowdown in the deterioration in Malaysia’s palm oil export performance.

 

Shipments for the first half of March were down 4.4% month on month, compared with a pace of 23% as of March 10, according to ITS. Rival AmSpec Agri put the pace of decline as of March 15 at 4.6%, compared with 22% as of March 10.

 

And with Brent crude up 0.8% too at $69.74 a barrel, a help to ags such as vegoils used in making biodiesel, Kuala Lumpur May palm oil futures added 0.5% to 4,146 ringgit a tonne – 340 ringgit short of the record high for a benchmark contract set in March 2008.

 

That helped oil-heavy oilseed canola gain 0.5% to Can$805.40 a tonne for May, while in Chicago, soyoil futures for May – now the spot contract, after the expiry of Chicago March grains lots - gained 0.3% to 55.54 cents a pound.

 

This as of 10:30 UK time, now 05:30 Chicago time after US clocks went forward at the weekend.

 

Short-term correction due?

So far so normal, by recent standards.

 

“Tight global supplies and an outlook for higher domestic soyoil usage for sustainable fuels has been market support,” said US-based Benson Quinn Commodities.

 

“Talk of higher US domestic soyoil demand for fuel supports soyoil futures,” said Steve Freed at ADM Investor Services.

 

Terry Reilly at Futures International, pondering the question of when the vegoil rally, which has sent May soyoil futures up 33% so far this year, might meet a setback said that “we do think a short-term correction is due for soybean oil.

 

But “long traders may want to see a decline in South American cash prices and pause in the upward momentum in Malaysian palm futures before taking profits”.

 

And with “renewable diesel production coming online, long term we remain bullish”.

 

Data later

However, one factor for traders to consider for later on is the monthly US soybean crush data, for February, due from the Nopa industry group.

 

This is expected to come in at 168.61m bushels, which would be the highest February figure ever, ahead of the 166.288m bushels reported a year ago.

 

But, especially with the cold weather last month, will the figure really reach that level?

 

And what too of soyoil stocks, expected to show at 1.839bn pounds, compared with 1.799bn pounds at the end of January and 1.922bn pounds at the close of February last year.

 

‘Big dose of new buying’

And something of a wildcard is the lifting of the ceiling for speculative positions on many ags – a factor which some feel could bring changes to market behaviour.

 

Mike Mawdsley at First Choice Commodities, noting that “in general, the position increase is not quite double their current limit”, said that “the thinking is funds will just jump in and buy more.

 

“Perhaps. What if they don’t? It will likely increase volatility. Great...”

 

Benson Quinn Commodities said that “with CFTC raising speculative positions limits… a big dose of new buying is expected”.

 

That said, with prices already high, and often fading at this time of year, might extra short bets be in the works?

 

‘Wetter than expected’

Certainly, downward was the default direction in grain prices in early deals, with soybeans for May, for instance, falling by 0.7% to $14.04 a bushel despite the support from soyoil.

 

And corn for May shed 1.1% to $5.33 a bushel.

 

One setback for both crops is improvements in weather in terms of rains for developing crops in Argentina, where according to Maxar “weekend rainfall was wetter than expected in southern Buenos Aires, La Pampa”.

 

This week, “rains in north western areas will further improve moisture for late growth, and improvements are expected in central and east [areas] this week”.

 

‘Concerns about feed demand’

Both crops are also running the gauntlet of growing worries over the fresh outbreak of African swine fever (ASF) in China, implying extra hog deaths and less mouths to feed with the likes of corn and soymeal.

 

“ASF has re-emerged with hog herds said to have declined 4% in January and February,” said Benson Quinn Commodities.

 

“This is raising concerns about feed demand with US exports sales to China turning quiet.”

 

Steve Freed noted that last week, “there was some talk that final China demand for US corn may be lower than some private guesses”.

 

In China, Dalian corn futures for May closed lower, if only my 2 yuan at 1,697 yuan a tonne, while soymeal for May shed 0.4% to 3,196 yuan a tonne.

 

‘Abundant showers’

Back in Chicago, soft red winter wheat futures for May shed 0.3% to $6.36 ¾ a bushel, also weighed by rain relief for dryness-tested crops, although in the US southern Plains rather than Argentina.

 

“Weekend precipitation was near expectations, with widespread rain showers in Kansas, western and central Oklahoma, western Texas, with snow in Colorado, west Nebraska,” Maxar said.

 

The weather services said that the “forecast is drier Tuesday”. Still, “abundant showers across much of the region Wednesday should significantly improve moisture for wheat”.

 

Kansas City hard red winter wheat, as grown in the southern Plains, shed 0.7% to $5.99 ¼ a bushel for May – dipping below $6 for the first time in two months.

 

Indian exports

In New York, cotton for May joined its fellow row crops in falling too, declining by 1.1% to 86.57 cents a pound.

 

Besides pressure from corn and soybeans, with which the fibre is linked via the so-called battle for acres in spring sowings programmes, a negative came from India in terms of an upgrade to 6m bales in the Cotton Association of India’s forecast for the country’s shipments this season, from a previous estimate of 5.4m bales.

 

This despite a trim to 35.85m bales, from 36m bales, in the output estimate. (The association uses 170kg bales, rather than the 480 pound ones used by the likes of the USDA.)

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