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AM markets: palm oil hits 4-year high, helping oilseeds gain, 07.12.16

Investors just can't get enough palm oil.

Futures in the vegetable oil rose 1.5% on Tuesday in Kuala Lumpur to hit a fresh four-year high of 3,182 ringgit a tonne.

The fall comes despite expectations that official data next week will show Malaysian palm oil stocks last month rising at their quickest pace since June, to 1.69m tonnes, with ideas that the impact of a seasonal 2.8% drop in production will be more than offset by a 10% drop in exports.

Whether the market has received another of its rumours, as has often been the case in recent months, and with fair reason, that production data will fall short of forecasts…

Certainly, with output heading into its seasonally low period, and demand potentially being spurred by stocking ahead of festive celebrations, including Chinese new year in late January, this is not the best time of year to be thinking of inventory rebuilds having legs.

It was some support that best-traded palm oil futures for May on China's Dalian exchange gained 0.7% to 6,374 yuan a tonne, a contract closing high.

Data later

Palm oil's gains supported further gains elsewhere in the oilseeds complex, with canola (an oil-heavy, rather than meal-heavy, member) gaining 0.6% to Can$590.30 a tonne in Winnipeg, amongst its highest levels of the past five months.

This despite upbeat hopes for data later on Tuesday on Canada's canola crop, expected to come in at 18.8m tonnes, up from an August estimate of 17.0m tonnes.

"Despite the excessive rain and harvest delays through Western Canada, analysts are still thinking the 2016 harvest could beat last year's 18.4m-tonne crop," said Tobin Gorey at Commonwealth Bank of Australia.

More supportive for canola was Abares' slight downgrade, to 3.58m tonnes, on Monday to its forecast for Australia's harvest of the oilseed, even as the wheat production estimate was hiked to a record 32.6m tonnes.

Oil vs meal

Meanwhile, in Chicago, palm's strength helped futures for January in rival vegetable oil soyoil gain 1.1% to 38.09 cents a pound as of 11:15 UK time (05:15 Chicago time), itself setting a two-year high (for a nearest-but-one contract) of 38.19 cents a pound earlier.

That allowed it to turn the tables on soymeal, the other main soybean processing product, which for January was up 0.3% at $320.30 a short ton, having outperformed in the last session.

As Terry Reilly at Futures International noted, in the last session, soyoil share of value of soy processing products "tanked as longs funnelled money back into soymeal, in turn selling soyoil.

"Soymeal bull spreading was noted. January soyoil was 5 points lower and January meal was up $7.00 a short ton".

US broker Benson Quinn Commodities said that "domestically there is plenty of meal, or there will be plenty of meal," as processors work through the country's record crop.

"Meal supplies for the balance of the globe aren't as robust."

'Very good margins'

Soybeans themselves for January were lifted a further 0.5% to $10.49 a bushel, with investors still giving a bit of cheer to Monday's announcement of export sales of 426,000 tonnes of the oilseed to China.

"Chinese [soybean] crush margins remain very good," said Benson Quinn Commodities, albeit flagging that, in terms of import purchases, there is "talk that China remains active in the Brazilian market as well" as the US.

Furthermore, there remain the, growing, worries over dryness in Argentina.

"Continued dryness in southern Argentina may see some weather premiums creep into pricing this week," CBA's Tobin Gorey said.

Benson Quinn Commodities noted worries of "how the next 10-day forecast is calling for mostly dry weather, while the extended forecast points to relatively dry conditions through the end of February".''

'Risk of being poorly established'

Such fears have percolated into the corn market too.

"Argentine corn planting benefited from the drier weather through November but the crop now needs some rain or it will run the risk of being poorly established," Mr Gorey said, and with the second phase of corn sowings now in play.

Still, March corn futures, having soared 3% in the last session in part on Argentina concerns, lacked the strength for further forward progress, easing back 0.2% to $3.58 ½ a bushel, although remaining well above the string of moving averages regained in the last session.

This included the 20-day, 40-day and 50-day lines.

Russian exports fall short

Wheat fared a little better, nudging 0.1% higher to $4.08 ½ a bushel in Chicago for March delivery, helped somewhat by the easing forecasts for Russia's exports, despite the record harvest.

After a, relatively, slow start to 2016-17 for shipments, Ikar on Tuesday cut by 500,000 tonnes, to 28.5m tonnes, its forecast for full-season wheat exports.

It was also some comfort to wheat bulls that Sydney futures nudged higher, by 0.5% to Aus$215.00 a tonne for January delivery, despite the huge upgrade on Monday by Abares to a record 32.6m tones in its estimate for the Australian harvest.

'Massive premiums'

Later on Tuesday, the wheat market faces the prospect of another upgrade, albeit a smaller one, with Statistics Canada expected to raise by some 200,000 tonnes to 30.7m tonnes its estimate of the 2016 harvest, taking it even further above last year's 27.6m-tonne result.

"They had their struggles, but its a big Canadian wheat crop," Benson Quinn Commodities said.

With Canada in particular a producer of hard spring wheat, the data could be especially important for Minneapolis futures, which for now stood 0.8% higher at $5.39 a bushel for March.

That move follows underperformance in the last session, when the lot's premium over Chicago wheat shed some 6%, albeit remaining, at roughly $1.30 a bushel, historically high.

"Minneapolis is fighting against the massive premiums it has to the winter wheat markets," Benson Quinn said.

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