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AM markets: ags make headway, defying soft China trade data, 14.09.15

The factory churning out testing Chinese economic news achieved some fresh output overnight, with soft trade data.

While the headline figure on the August trade surplus was promising - showing a jump of nearly 40% month on month to 368bn remninbi, about $58bn and only a touch below February's record of 370bn remninbi – the components of the figure were less cheering.

The value of imports fell 14.3% year-on-year , an acceleration from July's 8.6% decline, and a 10th consecutive drop.

The increasing trade surplus was just that exports just happened to fall less strongly, by 6.1% year on year, compared with an 8.9% drop in July.

The data were seen as a downbeat comment on China's economy, but also on the world's, given the lower demand for Chinese exports.

'Vulnerable to a big downside move'

This might have been expected to usher in a negative session for agricultural commodities, given that they count large among Chinese imports.

It seems a reasonable bet that, as CHS Hedging said last week, "if the Chinese economy continues to falter, soybeans could be vulnerable to another big downside move ahead of" the US Department of Agriculture's key monthly Wasde crop report, due on Friday.

However, ag futures broadly took the data in their stride, with US contracts returning strongly from a three-day weekend in the country.

With poor Chinese data, after all, come expectations that the country will do ever more to prop up its economy.

(And given the extreme attempts it took to try to support its stock market, economic intervention measures could prove generous indeed.)

Oil bounces

Indeed, shares rose in Shanghai, by 2.9%, with Hong Kong stocks up 3.2% in late deals, while Sydney stocks rose 1.7%, helped by an Aus$11bn bid by Woodside Petroleum for rival Oil Search.

Meanwhile, the dollar eased, promoting the competitiveness of dollar-denominated assets such as many commodities by making them more affordable to buyers in other currencies.

The Chinese trade data was viewed as lessening the chances of an imminent US interest rate rise.

Brent crude, a commodities bellwether, rose 0.5% to $47.86 a barrel, reversing some of the last session's losses.

Strong soybean imports

And, helpfully for soybeans, the Chinese trade data showed that imports of the oilseed had not fallen as far as many expected last month.

At 7.78m tonnes, they were down 18.1% from July's record high.

But some decline had been expected given a seasonal slowdown in purchases from South America, and with the US harvest yet to ramp up and take its window of dominance in world trade.

Besides, the imports were 29% higher year on year, and eased jitters over a report from the US Department of Agriculture bureau in Beijing pegging soybean imports in 2014-15 and next season lower than the USDA has factored in.

'Unsettled observers'

The report "unsettled observers ahead of the new official USDA estimates due to be published on Friday" in the Wasde, Commerzbank said.

But the briefing's forecasts included an estimate for Chinese imports reaching about 13m tonnes in August and September combined (the last two months of 2014-15), a figure which now looks likely to be exceeded.

China's soybean imports this month will reach about 6.47m tonnes, according to China's official CNGOIC think tank, which would take the total for the two months comfortably over 14m tonnes.

Soybeans for November gained 0.7% in Chicago to stand at $8.72 ѕ a bushel as of 09:15 UK time (03:15 Chicago time).

Palm up

This time it was soyoil among the soybean processing products which was providing the most support, adding 1.1% to 27.01 cents a pound in Chicago for December delivery, helped in turn by another positive performance by palm oil.

Palm oil for the benchmark November contract added 0.7% to 2,063 ringgit a tonne in Kuala Lumpur, earlier touching its 40-day moving average on a continuous chart for the first time in two months.

OK, the weak ringgit, at its lowest against the dollar since the 1990s, is having a supportive effect, in improving the competitiveness of Malaysian exports.

But the threat of El Nino, which has a habit of bringing undue dryness to South East Asia, is gaining comment in this market too (even if the weather pattern appears to be sparing Australia a lack of rainfall).

'Significant advance in prices'

"It appears that El Niсo has already reduced precipitation from May to August for Malaysia and Indonesia, and this is starting to raise concerns about palm oil production for the upcoming December-to-March timeframe," said US-based ADM Investor Services.

"Losses could increase in the months after that if dryness, and El Niсo, continues to intensify over the next few months," the broker said, noting that "more dry weather is forecast over the next few weeks" for Indonesia, the top palm producing country.

"If palm oil production and exports from South East Asia decline 10% in the coming year, then finding an additional 4.7m tonnes of other vegetable oils to replace it could be a difficult task.

If El Niсo "intensifies to being the strongest on record, which has been suggested by several analysts recently, then the impact on palm oil production in Indonesia and Malaysia and oilseed production in India could help tighten vegetable oil supply and justify a significant advance in soyoil prices."

Yield results

Back in Chicago, grains got off to a firm start too, with corn futures getting a little help from another figure from China.

The CNGOIC lowered its forecast for the domestic corn harvest by 3m tonnes to 229m tonnes, although that is still a record, and above the USDA's 225m-tonne estimate.

Furthermore, while the US corn harvest is ramping up, early yield results are not wowing the market.

"Early US corn yield reports vary widely," said Terry Reilly and Futures International,

Traders at a major European commodities house, with substantial North American interests, said that "there have been reports of some spectacular crops in the western Corn Belt, although those in the east are still showing the effects of the wet weather in the spring".

Corn for December gained 1.0% to $3.66 Ѕ a bushel.

Russia downgrade

Wheat futures fared even better, adding 1.2% to $4.73 Ѕ a bushel in Chicago for December delivery, and extending their recovery in the last session.

Russian consultancy Ikar helped by lowering its forecast for the Russian wheat harvest, by 1.2m tonnes, albeit to a still-strong 60.6m tonnes.

The downgrade brought to an end a run of updates, with the European commodities house have flagged that "the estimates of the Russian wheat crop continue to grow at 1m or more tonnes each week, with latest estimates now in the 62m-63m tonne range".

Meanwhile, data late on Friday showed that hedge funds have already opened many short positions in wheat, with their gross short in Kansas City hard red winter wheat actually the highest on records going back to 2006.

Still, Kansas City wheat for December lagged a little in early deals, adding 1.0% to $4.79 ј a bushel, and losing some of its newly-regained premium over its Chicago peer.

Cotton gains

New York cotton for December gained 0.8% to 63.10 cents a pound, also unphased by the Chinse trade data, even though the country is the top importer of the fibre.

Futures on China's Zhengzhou exchange were mixed overnight, although the best-traded January lot did fall 0.4% to 12,475 yuan a tonne.

Australia's official commodities bureau, Abares, on Monday forecast a 470,000-tonne cotton crop in 2015-16, up 20,000 tonnes year on year, but still a relatively downbeat result (the 2013-14 harvest was 819,000 tonnes).

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