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Soyoil futures jump, after US curbs biodiesel buy-ins, 24.08.17

If palm oil was the toast of ag bulls 24 hours ago, this time soyoil took their plaudits - while corn and wheat contracts made another attempt to crawl from market wreckage.

The US Commerce Department overnight indeed issued its ruling, as trailed by, on action to counter imports of Argentine and Indonesian biodiesel allegedly sold at prices rendered artificially low by state help.

And it boded ill for further imports, finding that "exporters of biodiesel from Argentina and Indonesia received countervailable subsidies of 50.29-64.17% and 41.06-68.2%, respectively", wuth the rate dependent on the exporter concerned.

'Clear detriment to Argentina'

What this means, for now, is that "the Commerce Department will instruct US Customs and Border Protection to collect cash deposits from importers of biodiesel from Argentina and Indonesia based on the above preliminary rates", with a final determination on levies to be given in November.

And as for the impact on trade according to Carbio, the Argentine biodiesel association, whose members actually include the likes of Cargill and Louis Dreyfus, the move will "result in an immediate stoppage of sales to the US, with a clear detriment to the entire soybean chain in Argentina".

Argentina accounts for some two-thirds of US biodiesel imports, which reached 916m gallons last year, compared with total domestic use of about 2bn gallons, and have grown further in 2017.

"By mid-year, US biodiesel imports were on track to shatter the previous record, and were up 92% during the January-June period on a year ago," said Terry Reilly at Chicago-based broker Futures International.

'Futures could be up limit'

In fact, the hole in the US biodiesel accounts will be smaller than that implied from simply replacing Argentine and Indonesian imports, requiring the US industry to produce 250m gallons of biodiesel for this year and up to 500m gallons for 2018, according to Arlan Suderman, chief commodities economist with INTL FCStone.

Still, with biodiesel made from vegetable oils, the decision is "expected to be bullish soyoil and canola oil near-term to incentivise processing of soybeans and canola", Mr Suderman.

Futures International's Terry Reilly advised investors to "look for soyoil [futures] to advance sharply on the news.

"Some speculate it could be up limit at some point," implying a jump to 36.92 cents a pound for Chicago's December contract.

Soyoil vs palm oil

In fact, the contract had, as of 10:00 UK time (04:00 Chicago time), maxed out at 35.37 cents a pound, before easing back to 35.02 cents a pound, a gain of 1.7% on the day.

Still, that represents headway of nearly 6% over six sessions, with headway spurred by strength in prices of rival palm oil, besides anticipation of a Commerce Department decision.

(Mr Reilly pondered over the potential for "buy the rumour and sell the fact" pressure on values today.)

Palm oil, meanwhile, fared less well easing back 0.5% to 2,724 ringgit a tonne in Kuala Lumpur, with the curbs on Indonesian biodiesel exports to the US implying more of it and its raw material needing to find other buyers.

It was little help that Chinese customs data showed the country's imports down 41% last month to 197,740 tonnes.

Canola, soybean price gains

Still, with canola oil also a major biodiesel feedstock in North America, as highlighted by Mr Suderman, prices of canola itself fared better, adding 1.0% to Can$512.00 a tonne in Winnipeg for November delivery.

That took gains over the past week close to 4%, with headway also spurred by a downgrade by Canada's farm ministry to its forecast for the domestic canola harvest.

And, elsewhere in the oilseeds complex, soybeans, the source of soyoil, found strength too, adding 0.7% to $9.43 ¾ a bushel in Chicago for November delivery.

Tour findings

That was more than fellow row crop corn could manage, with Chicago's December corn lot up 0.1% at $3.60 ½ a bushel, recovering from a near-one-year closing low for the contract, amid waning concerns over weather damage to US yield prospects.

Hopes among corn bulls that the much-watched Farm Journal crop tour would find problems have not been answered, at least in the event's first two days (of four).

It pegged the corn yield in Nebraska, the fifth largest US producing state, at 165.42 bushels per acre, above the 158.60 bushels per acre seen last year, and a three-year average for the tour of 162.51 bushels per acre for the state.

For Indiana, the yield was put at 171.23 bushels per acre, only a little below last year's finding of 173.42 bushels, and the 173 bushels per acre the US Department of Agriculture forecast for the state earlier this month.

Yield upgrades

In fact, the current trend of yield estimate revisions appears to be upwards, with influential analyst Michael Cordonnier, for instance, lifting his forecast by 1.5 bushels per acre to 165 bushels per acre.

Lanworth on Wednesday nudged its estimate higher to 168.2 bushels per acre, "on improved weather".

Benson Quinn Commodities, noting that August weather has not been "really a 'merciless attack' on crop health and wellbeing", noted that a "few more pundits are moving closer" to USDA's estimate of 169.5 bushels per acre, a forecast which gave bears such cheer earlier this month.

Wheat futures also showed modest gains, adding 0.2% to $4.30 a bushel in Chicago for December delivery, after ending the last session at a contract low.

Not that downward pressure from the huge Russian harvest, upgraded by Ikar on Tuesday by a further 3m tonnes to 82m tonnes, appears to be subsiding.

"Ample supplies in the Black Sea, especially in Russia, are weighing on the market," Agritel said.

Indeed, Benson Quinn Commodities said that it "looked like the Russian [export wheat price] was down another $1 a tonne" on Tuesday, and potentially $2 a tonne.


What appears to be the best hope for wheat bulls is the extent of selling that has already gone on, with a rise in open interest in Chicago futures of more than 23,000 lots over the past week seen as down to establishment of fresh short positions – the appetite for which will have a limit.

"The winter wheat markets haven't been this oversold for a very long time," Benson Quinn Commodities said.

"Markets are oversold, which could trigger a modest correction at any point."

Tobin Gorey at Commonwealth Bank of Australia said that "momentum investors building a large short position also makes the market 'springy' if the market finds buyers.

"We expect those buyers will eventually emerge."

Harvey bollbanger?

In New York, cotton futures for December rose 0.7% to 68.29 cents a pound, with Mr Gorey noting that "the market finally has, sort of, some weather issues to worry about", in terms of Tropical Storm Harvey.

"The storm system, the precursor of a cyclone, might bring too much rain to the cotton regions spanning from Texas's Coastal Bend and eastern regions across to some areas of the Mississippi Delta."

Chinese cotton imports fell by 7.3% last month to 89,952 tonnes, but remain up 38% for the first seven months of the year, at 728,627 tonnes.

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