China’s soybean appetite key to CBOT grain prices

April 19, 2009

China’s seemingly unquenchable desire for soybeans coupled with a smaller South American soy crop than a year ago keeps traders focused on Chicago soy markets, asking: how high could they go? 
Chicago Board of Trade soybean futures rallied to a six-month top of $10.73 on Friday, surpassing its 200-day moving average, before profit-taking set in. Soy closed 7-1/2 cents lower at $10.51, but up 4 percent on the week. Corn declined 3.6 percent week-to-week to end at $3.76-1/4 and wheat was basically unchanged at $5.23. 
“The link pin on the bullish side of this grain market continues to be the soybeans. We are going to watch the demand underneath this market — as we have moved up in price, we have not rationed demand,” said Don Roose, analyst and president of U.S. Commodities in West Des Moines, Iowa. 
U.S. export sales are running nearly 8 percent ahead of last season, trumping USDA’s outlook this autumn that 2008/09 exports would lag the previous year. Chatter among U.S. grain traders last week was that China, the world’s top soy buyer, booked up to a million tonnes of soy from the U.S. and Brazil, the world’s top two exporters. 
Traders are wary of China “switching” U.S. soy bookings to Brazil, as more freshly harvested soybeans move into marketing channels, or even withdrawing its business. Any signs of that would undoubtedly weigh on prices. But U.S. soybean landed prices to China were the cheapest in the world last week, analysts said. Brazilian cash markets were red hot amid active Chinese buying. 
Argentina, the third-largest exporter, has been edged out of the equation for now. Recent unrest between farmers and the government over a soy export tax, halting trade at times, and a crop hurt by severe drought makes China a reluctant buyer of Argentine soy. 
China’s stockpiling, coupled with a short South American crop, is expected to draw down U.S. soy stocks by the end of marketing season on Aug. 31, to 165 million bushels — a mere 20-day supply and a five-year low. The tight stock outlook pushed old-crop July soybeans <SN9> to more than $1 above new-crop November soy <SX9> by Friday, up 80 cents from the prior week. 
“Beyond here, seasonally it starts to come apart,” one CBOT trader said, referring to the July/November spread. “We are not going to see the $2.50-$2.60 levels we saw back in 2004 when we had extremely tight stocks” of 112 million bushels. 
The sixth-consecutive weekly gain on Wall Street stocks, capping the longest weekly winning streak since 2007, aided sentiment. But the seasonal fundamentals of the U.S. planting season will likely be a bigger price driver this week. 
U.S. corn planting is off to a slow start due to a cool, wet spring, but the outlook was improving and viewed as bearish for CBOT corn prices. USDA will update is seeding figures late Monday. Traders expected the agency to report corn planting 5 percent to 7 percent complete. That is up from 2 percent a week ago, but behind the five-year average near 15 percent to 20 percent by April 19. 
Farmers were busy applying fertilizer and planting corn in the top crop state of Iowa on Friday, crop specialists said. Most of the activity was from Des Moines northward to the Iowa-Minnesota border. Rain was expected to move through the Midwest over the weekend but then it should turn clear.
“We are going to see how much rain we get Saturday and next week we are going to run 24/7,” said Palle Pedersen, extension agronomist at Iowa State University.


China “switching” U.S. soy bookings to Brazil, this is a worrying development, as it means more demand for farmland and more of the Amazon rainforest having to make way for soy crops.


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