AM markets: soy, corn gain on idea bearish news is priced in
Can soybean futures make it three winning sessions out of three this week?
Not, it has to be said, that the gains have been particularly strong, with Chicago’s January contract remaining within an ace of six-year lows, on a spot contract basis.
But there is some idea that, while there is bearish talk around on the oilseed, that has been largely priced in for now.
That idea only gained strength with the US regulatory data late on Monday showing that hedge funds had hiked their net short in Chicago soybean futures and options by nearly 32,000 lots in a week, to a sizeable 52,301 contracts.
That provoked ideas that speculators may be more reticent about further short positions, with the risk of this trade looking a little crowded, especially given values are already so low.
Soybeans, and grains too, “seem to be trying to carve out support with the consolidative trade witnessed the past few sessions”, said Tregg Cronin at North Dakota-based broker Halo Commodity Company.
Besides, it is not as if all the fundamentals remain on bears’ side.
The dollar eased 0.2% against a basket of currencies, improving the competitiveness of dollar-denominated exports, such as many commodities.
And there remain doubts about whether Brazil’s crop will really top 100m tonnes for the first time.
Safras e Mercado flagged continued slowness in sowings, with Brazilian plantings 56% complete, behind the typical 68% by now.
(That said, this delay may actually be more of a threat to follow-on safrinha corn, if late soybean sowings mean a late harvest of the oilseed, eating into the small window for sowing the second-crop corn afterwards.)
‘Concerns of crop damage’
“It’s debateable on how good the Brazil soybean crop is shaping up,” said Terry Reilly at Futures International.
“Some analysts are noting poor crop conditions due to too much rain in the south, hot and dry conditions in the central producing areas, and drought conditions in the north east.
“Others are viewing the current weather forecasts as favourable for planting progress and maturation.”
CHS Hedging said: “There are some concerns of crop damage to key soybean areas in and around Mato Grosso, from dryness early in the season, despite recent rain events.”
‘Incredible amount of attention’
OK, in neighbouring Argentina, where sowings are also a touch slow, there is the prospect of a hoard of soybeans hitting the market, assuming the winner at Sunday’s presidential elections delivers on promises (made by both candidates) to cut agricultural taxes and red tape.
“There is an incredible amount of attention being paid to the special run-off election in Argentina, given the implications it could have on ag exports for this year and acreage mix for next season,” Halo’s Tregg Cronin said.
However, “that may already be priced in” to soybean futures, said Kim Rugel at Benson Quinn Commodities.
“I would not be surprised to see this market trade a little better the for the rest of the week as the short spec trader takes a bit of profit ahead of Thanksgiving,” which falls on Thursday next week.
“With most bearish news seemingly priced in the market at the moment path of least resistance on Tuesday felt higher on some nominal short covering.”
This time, soybean futures for January edged 0.3% higher to $8.66 ¼ a bushel as of 09:30 UK time (03:30 Chicago time), after having gained some technical kudos in the last session too by closing above its 10-day moving average for the first time in four weeks.
‘Carving out a bottom’
Fellow row crop corn gained 0.1% to $3.62 ½ a bushel for December, maintaining its record of being something of a follower of the other markets, although this time of soybeans rather than wheat.
Again, sluggish Brazilian sowings progress – of first crop – pegged at 75% complete compared with 92% a year ago helped, as did the move by speculators to having a net short position in the grain.
The net short shift in hedge fund positioning in the latest week, of 83,169 lots, was the biggest in corn since July 2013.
Sure, with the potential for Argentina’s election to lift corn supplies from the country too “the trade seems to think their might be another round of trimming due on the [US] corn export side of the balance sheet”, Benson Quinn Commodities said.
“Nevertheless, charts appear to be carving out a bottom with support at $3.60 a bushel on the December contract.”
Indeed, there is some idea of this being supported too by the closure of short corn-long wheat spreads, with corn’s discount in Chicago, December basis, now down to $1.24 a bushel from levels above $1.50 a bushel only two weeks ago, and with the potential for more closure to come.
“I expect the spread between corn and wheat needs to narrow more,” Benson Quinn Commodities said.
The broker also flagged a “notable breakdown in soft red winter wheat charts as prices leaked below support on the latest range”.
Meanwhile, rains moving through hard red winter wheat country were viewed as boosting prospects for newly-planted seedlings, and for the 2016 harvest.
Futures International’s Terry Reilly termed the rains a “$200m storm… providing beneficial precipitation to winter wheat”.
‘Exports will pick up’
Indeed, Kansas City-traded hard red winter wheat fared particularly badly shedding 0.4% to $4.61 ½ a bushel, and reopening its discount to Chicago-traded soft red winter wheat (grown in the Midwest) which dropped 0.1% to $4.87 a bushel.
But might this mean that US wheat can find export demand at last?
Tobin Gorey at Commonwealth Bank of Australia flagged the Kansas City wheat was now at its most competitive to Paris wheat since early October.
“Should the discount continue at that level it would suggest that US wheat exports will pick up in the next couple of [US Department of Agriculture weekly export] reports,” Mr Gorey said.
Elsewhere, palm oil did its bit to promote the oilseeds resilience theme, gaining 1.1% to 2.319 ringgit a tonne in Kuala Lumpur, before bumping into a clutch of moving averages (on the continuous chart) which may provide resistance to further gains.
Indonesian palm oil output was seen easing to 3.0m tonnes last month from 3.1m tonnes in September, thanks to South East Asia’s haze, according to a Reuters survey.
And in New York, cotton for March, the best-traded contract, extended gains, adding 0.4% to 62.90 cents a pound, as the wet weather boosting US wheat prospects hampers cotton harvesting.
“Looming storms in the US Delta and South East are giving the market a boost,” Mr Gorey said.
Already this week, southern US areas have seen “strong storms” which have brought “winds in excess of 70mph and quarter-sized hail reported across portions of Texas”, said Louis Rose at the Rose Report.
“Cotton remains on the stalk in Missouri and Tennessee, and the recent weather will further delay harvest and threaten quality in these states.”
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