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PM markets: export hopes protect soybeans from ag sell-off, 19.09.17

Often shares and commodities move in different directions, with some observers indeed seeing that a consequence of investors swapping assets classes to seek the best returns.

While Wall Street stocks started the week by setting fresh record highs, commodities eased, with the Bcom commodities index slipping 0.1%.

The Bcom ag sub-index dropped 0.7%, returning back towards its eight-year low hit late last month.

Cotton, which ended up 0.6% at 69.50 cents a pound in New York for December delivery, and orange juice, which added 1.1% to 151.35 cents a pound, were among the few gainers, in what looked like the reinjection of a bit of risk premium as yet another hurricane, Maria, lashes the Caribbean.

Judging from its current path, there is a possibility Maria might reach the US, some time early next week, although that it by no means a certainty.

'Gaining importance'

Otherwise, selling was evident despite, for instance, continued worries over dry weather in Brazil, and extreme wetness in Argentina, which is threatening slow progress to early corn and soybean seedings.

Global weather "leans positive" for prices, "with a dry Brazil outlook, a wetter tone in Argentina, and ongoing dryness in the eastern one-third of Australia", said Richard Feltes at Chicago broker RJ O'Brien.

Benson Quinn Commodities said that "South American weather is gaining importance as northern Brazil remains dry.

"This is expected to continue for the next week to 10 days at least."

'Better than expected'

However, a negative for prices is the ramp-up of the US harvest, bringing extra supplies and selling pressure, and with results so far not appearing too bad, given the dry July Midwest weather, and drought in the northern Plains.

"Early yield reports are coming in better than expected," said CHS Hedging, relevant to both corn and soybeans.

At Halo Commodity Company, Tregg Cronin said that "so far, the early flow of yield reports would have to be characterised as 'better than expected' in Illinois, Missouri and Kentucky, but below expectations in Iowa".

RJ O'Brien's Richard Feltes said that "early east central Illinois soy yields are 8-10 bushels per acre below those a year ago, as expected, while early corn yields are 20-30 bushels per acre below year ago, versus expectations for a 25-40 bushels-per-acre decline".

Export divergence

Soybeans at least had some evidence of demand to protect them somewhat from the harvest talk, with the US announcing the sale of 261,000 tonnes of the oilseed to China, and a further 126,000 tonnes of beans to an "unknown" import destination.

"That is the real difference in the price movement today," said Darrell Holaday at Country Futures.

"The soybean complex has significant export interest.

"There has been very little export interest in the corn and wheat in recent weeks."

(In fact, US export data for last week came in at: 928,575 tonnes for soybeans, down from 1.11m tonnes the week before; 676,819 tonnes from corn, little changed week on week; and at 464.375 tonnes for wheat, down some 44,000 tonnes week on week.)

'Major market worry'

Indeed, in the US corn export markets "late last week, CIF corn [export prices] traded down to $0.14 a bushel above December futures, which is the lowest spot trade since 2009", said Halo's Tregg Cronin.

"This is due to the large amount of old crop corn still trying to move as well as the lack of a nearby export programme relative to recent years.

"Traders knew the competition from South American corn supplies would be fierce, but export commitments as of last Thursday are the second lowest for this time of year in the last 11 years."

Mr Cronin summed up by saying that "the structure of the corn market remains a major market worry".

Soyoil slips

Indeed, corn futures for December dropped by 0.8% to $3.51 ½ a bushel.

Soybean futures for November eased only 0.1% to 9.67 ¾ a bushel, taking the soybean: corn price ratio to an elevated 2.75: 1.

This looked especially resilient given a 1.0% tumble to 34.43 cents a pound in December soyoil futures, which were weighed by weakness in the Kuala Lumpur palm oil market overnight, besides by US regulatory data showing that hedge funds have built a large net long position in Chicago soyoil futures and options.

At more than 100,000 lots, it is getting within range of the record net long of 126,000 lots hit in November, with extensive net short (or net long) holdings raising ideas that appetite for such positions may be spent.

'Encourage more seeding'

Wheat dropped too, by 1.4% to $4.43 ½ a bushel in Chicago for December delivery, despite further evidence of Russia's huge export supplies losing their competitiveness.

Black Sea prices for Russian wheat with 12.5% protein, for September delivery, rose $2 last week to $185 a tonne, according to Ikar.

SovEcon also put the price at $185 a tonne, but reckoned that was a $1-a-tonne rise week on week.

Values are being supported by strength in the rouble.

On the negastive side for prices, CHS Hedging, flagging that winter wheat seeding is underway in the US, flagged that "rains over the weekend should help restore soil moisture and encourage more wheat seeding in the southern Plains", a key winter wheat growing area.

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