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Morning markets: Will new month bring new money to grain markets?

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If the saying of months ending on a weak note in Chicago did not quite go to plan, will the idea of new month, new money falter too?

 

Not that the last session was a strong one, with wheat and, especially, soybean futures ending weaker, little helped by poor US export sales data either.

 

But corn did manage some headway, in what was attributed largely to spreading with soybean futures – or was it the unwinding of short corn-long soybean spreads?

 

Open interest data was somewhat inconclusive, in showing a rise in live soybean futures contracts by 8,600 lots back above 750,000 contracts, but a drop in corn, to 1.52m.

 

That said, the decline in corn open interest of 3,646 lots on the day was small by recent standards, with the forthcoming expiry of the December contract prompted a drop of 165,000 lots over the previous four sessions.

 

And there were other factors in play, with for instance, traders looking at the Environmental Protection Agency’s little-changed biofuel targets for 2018 as somewhat neutral for corn, the basis of ethanol, but a disappointment for biodiesel, made from soyoil, and thus ultimately soybeans.

 

Dalian reversal

 

This time, in the opening session of December, soybean-corn spreading certainly did not look a feature in early deals, with prices of both contracts were heading in the same direction - higher in fact, although not excessively so.

 

Corn futures for March added 0.1% to $3.56 ¼ a bushel.

 

And this despite a rare retreat overnight in prices of corn on the Dalian exchange in China, by 0.6% to 1,706 yuan a tonne for January delivery.

 

This after a 3.6% rise in the contract last month, as pressure eased from the country’s harvest, with demand forces seen strong, and prompting talk indeed of significant imports.

 

Indeed, CHS Hedging flagged an estimate from “an industry source that China will need to see an expansion in its ethanol production capacity to 14m tonnes from their current production of 2.7m tonnes tons by 2020 to meet their targeted blending mandate”.

 

Argentine weather

 

The jury looks out on Argentine weather, with Tobin Gorey at Commonwealth Bank of Australia saying that while “much needed rain feel in the unseasonably dry Argentinian corn growing region of Cordoba earlier this week”, the province “will need more rain over the coming weeks to sustain the improvement in soil moisture”.

 

For soybean areas, CHS Hedging noted “improving weather in Argentina expected late this week”, although Terry Reilly reminded of drier conditions expected to set in next week “which may raise soil moisture concerns/crop stress”.

 

Soybean futures for January gained 0.1% to $9.86 ¾ a bushel, offered support this time by soyoil, which for January bounced 0.4% to 33.97 cents a pound.

 

Soyoil vs soymeal

 

One help was a downgrade of 600,000 tonnes to 21.7m tonnes by the European Commission in its forecast for EU production of rival oilseed rapeseed this year.

 

Furthermore, there was note of the low level of soyoil prices relative to soymeal – ie with the vegetable oil accounting for a relatively small share of the total value of soybean processing products.

 

“Nearby soyoil share is still near the lower end of a six-month trading range and could still appreciate back above 35% if US soymeal exports slow,” said Terry Reilly at Futures International.

 

Soymeal futures for January helped a readjustment by easing 0.2% to $326.10 a short ton for January delivery.

 

‘Touched competitive levels’

 

Wheat futures, meanwhile, put in a 0.1% gain to $4.33 ½ a bushel in Chicago for March, amid some ideas that price weakness may have gone far enough.

 

“US winter wheat futures pricing, if translated into the physical market, is quite competitive,” said Tobin Gorey at Commonwealth Bank of Australia.

 

“Prompt dollar prices might just have touched competitive levels at times over the last day or so,” as the December lot returns close to contract lows, easing 0.1% to $4.09 a bushel on Friday.

 

“And even March futures are more competitive, if not competitive,” Mr Gorey said.

 

‘Big yields’

 

Still, Kansas City hard red winter wheat fared a touch better in adding 0.2% to $4.32 ½ a bushel – despite deliveries overnight against the expiring December lot.

 

Deliveries are seen by many investors as a negative to prices, in indicating the futures market as an attractive place to sell versus cash, and now rather than deferring sales to the future.

 

However, there is a Chicago adage “buy heavy deliveries”, which did appear to work in corn in the last session.

 

And Minneapolis spring wheat added 0.8% to $6.84 a bushel, despite the prospect next week of Canadian production data which many feel will show a bumper (spring) wheat number.

 

“Traders are expecting next week’s StatsCan production estimate to show wheat production at numbers that are higher than earlier expectations as traders talk big yields produced by favourable weather,” said CHS Hedging.

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