"Bull markets in grains need feeding, they say.
That is, escalating futures need a daily dose of price-supportive news to keep them on an upward path.
And the apparent lack of much fresh on Argentina’s weather woes, the catalyst to the rally over the past week in prices of soybeans and of soymeal (of which the country is the world’s top exporter), allowed a touch of profit-taking in early deals on Thursday.
‘Floods to recede’
In fact, Argentina’s weather outlook is better, in terms of lacking the extreme rains which have been the bane of the country’s central soybean belt, causing flooding, crop losses and hampering replanting.
While the US Department of Agriculture has forecast the Argentine soybean crop at 57m tonnes, many investors are thinking of numbers closers to 50m tonnes.
Crop analyst Michael Cordonnier, for instance, has pegged the harvest at 51m tonnes, while broker Benson Quinn Commodities said that ‘there have been enough issues that a 54m–55m-tonne crop is off the table,’ although adding that ‘a 52m–53m tonnes is still possible with the right conditions’.
And, as Tobin Gorey at Commonwealth Bank of Australia said, ‘forecasters say dry weather over the next 10 days will allow floods to recede and farmers to assess the level of damage’.
‘Continue to see stress’
That said, the outlook is not all good.
‘The long-range forecast has more rain coming back in,’ said Joe Lardy at CHS Hedging, adding that ‘this weather uncertainty, along with more time needed to assess flooding damage, should keep the soybean market volatile.’
And even the dry spell may not be all good.
‘Southern Buenos Aires will continue to see stress due to dry conditions,’ said Benson Quinn Commodities.
Thinking more of corn, Terry Reilly at Futures International said that while Argentina’s weather was expected to improve this week ‘some wonder if the hot and dry temperatures following the heavy rainfall will add stress to the recently planted crop’.
China, US considerations
Still, what the apparent, if temporary, ceasefire by Argentina’s weather Gods does allow is a focus on some of the other factors in the soybean market.
China, the top soybean importer, ‘thus far, is showing no interest in chasing the rally,’ said Richard Feltes at Chicago broker RJ O’Brien, if adding that this dearth of interest ‘may change after crushers return from Chinese new year’.
And then there is the enhanced potential for huge US spring sowings of soybeans being encouraged by the elevated prices.
The ratio of November soybean futures: December corn futures, at 2.63, is well into territory incentivising plantings of the oilseed over the grain.
This ‘historically high’ ratio is ‘providing a strong incentive for US farmers to increase 2017 US soy acreage, with private sector analysts looking for a 5m–7m acre gain’ in the country’s soybean area.
Not, it has to be said, that all comparisons between corn and soybean prices raise concerns over high prices of the oilseed.
In fact, May soybean futures have a strong seasonal tendency to gain again corn futures between late January into May.
‘The seasonal tendency for new crop soybeans to gain on new crop corn is quite strong from late January through late February, before consolidating from early March through mid-April, and then surging higher into late June seasonal high,’ Mr Feltes said.
The ‘bottom line here is that corrections in the premium of March soybean futures to March corn below $7.00 a bushel are buying opportunities,’ he said.
‘Look for an upside objective of $7.50 a bushel.’
In fact, the premium stood a touch above $7.00 a bushel in early deals, with March soybean futures easing 0.3% to $10.72 a bushel as of 10:00 UK time (04:00 Chicago time) under weight of a little profit-taking and producer selling which has been encouraged by higher prices.
Soymeal, after an 11.5% surge in four sessions on the Argentine worries, was of little help in falling back 0.7% to $348.50 a short ton.
Futures in corn, meanwhile, for March eased 0.2% to $3.64 ½ a bushel.
The grain, for agricultural and geographical reasons, is seen as less vulnerable to Argentine rains than soybeans, and its futures have gained less – meaning fewer profits to take.
Furthermore, from a chart perspective, ‘March corn faces strong resistance [to further upward moves] with $3.69 a bushel being the six-month high and $3.70 being the 200-day moving average’ said Benson Quinn Commodities.
’Continued supportive news will be needed for corn to break through current resistance levels.
‘I would look at better-than-expected exports, ethanol grind and a continued rally in soybeans all key factors in testing higher values.’
(The US will later on Thursday unveil data on ethanol production for last week.)
Not cold enough
Corn also gained ground on wheat, which has been little affected by the Argentine rains story, given the wheat harvest there is in its last throes.
Nor have weather worries elsewhere chilled grain bears too much, with the freezing temperatures and high winds which caused Romania to close its Black Sea ports not seen as too much of a threat to winter grain seedlings.
In Russia and Ukraine, ‘snow cover should still be sufficient to protect crops’ against temperatures which have fallen to minus 15 degrees Celsius, said consultancy Agritel, flagging decent crop health going into winter too.
‘Only 3% of the fields were judged not to be in a good condition before winter while it was 9% in 2015.’
‘A little toppy’
Benson Quinn Commodities said that ‘the price action in all three wheat markets,’ that is Chicago soft red winter wheat, Kansas City hard red winter wheat and Minneapolis-traded hard red spring wheat, ‘feels a little toppy’.
‘I would lean towards the funds having bought enough in the hard wheat markets at this point,’ and the potential for a ‘better correction in the wheat markets between now and weekend’.
Certainly, Chicago wheat for March stood 0.5% lower at $4.29 a bushel, while its Kansas City peer dropped 0.3% to $4.50 ¾ a bushel.
But Minneapolis spring wheat fared better, in adding 0.4% to $5.75 ¾ a bushel, regaining premium over Chicago lost in the last session.
‘Relatively tight carryout’
For real gains, however, it was necessary to travel to New York, and cotton, which gained 1.1% to 73.05 cents a pound for March, regaining its 10-day moving average.
It was not immediately clear that there was much in supply and demand news to send prices higher, although Louis Rose at the Rose Report did not that ’spot quotes in Brazil continue to move higher.
On the negative side for values, Ecom flagged that ’certificated cotton stocks continue to build in the US and were last reported at 112,556 bales with a further 4,491 bales waiting to be reviewed.
‘If the cert stock continues to build it may add carry in the market which would negatively impact long speculative positions and may result in some speculative liquidation of long positions.’
Still, what could be cheering up US cotton bulls is the rash of fresh reports that Sonny Perdue, a former governor of George, a cotton-growing state, is to be named US agriculture secretary.
‘As a veterinarian, agribusiness owner and a governor who established an agricultural advisory committee in Georgia, he understands and appreciates the importance of American agriculture both here and abroad,’ said the National Chicken Council.