Views on commodities and energy
China looks key to summer CBOT price moves
The U.S. government’s estimate last week for U.S. soybean stocks to reach a 32-year low by September will continue to dominate action in U.S. grain markets in the coming week — and perhaps all summer.
USDA forecast the supply of U.S. soybeans by Aug. 31 to reach 110 million bushels, less than a two-week supply for domestic processors who make vast amounts of soymeal for animal feed and soyoil for food and biofuels. Chicago Board of Trade soybean prices shot to nine-month highs on Thursday after the estimate before pulling back in volatile trading on Friday as speculators cashed profits for the weekend.
But the biggest question on the minds of traders remains in place: Will the United States, the world’s single largest grower and exporter of soybeans, run out of beans this summer?
“The answer to that rests on how many more soybeans China sources from the U.S.,” said Rich Feltes, senior vice president at MF Global Research. “Are they going to defer old crop to new crop, whether or not they have cancellations?”
China, the world’s largest soy importer, has been buying soybeans at a record pace this season to meet both its domestic crushing needs and build its state reserves. According to the latest customs figures issued just last week, China’s soy imports in the first five months of the year rose 27 percent from a year ago to 17.38 million tonnes, with most of those sourced from the United States.
More than half of U.S. soy exports are headed to China this season. In fact, U.S. soy exports are now just shy of USDA’s full-season projection with 2-1/2 months left to go before harvest. China’s competition is squeezing U.S. processors so much some may have to shut down at a time of soaring meal and oil prices, having run out of beans. Unless, of course, China eases its red-hot import pace.
Traders said that may be happening. USDA’s weekly export report on Thursday reported China canceled a purchase of 55,000 tonnes of soybeans for this season. “Unknown destinations,” a category that traders often assume is China, also canceled 73,500 tonnes — while booking 226,500 tonnes for delivery in the new season starting Sept. 1.
“This is exactly what has to happen,” said Roy Huckabay, an analyst at The Linn Group in Chicago. “You have to do something to stretch the remaining supplies. We can’t run out.”
SOYMEAL PRICES DRIVING THE CRUSH
The last thing processors want right now is to run out.
Hugely profitable crush margins — near $1 a bushel in central Illinois last week, versus 84 cents a year ago — have processors Cargill, ADM and Bunge churning out meal and oil.
Soymeal prices have risen above $400 a ton for the first time since July 2008. If the 2003/04 marketing season is any indication, traders could be in for wild ride this summer as the poker game between domestic processors and Chinese importers plays out. In 2004, U.S. soybean stocks slipped to 112 million bushels after a short crop in 2003.
In 2009, the tug of war for beans is widening the July/Nov. soybean spread — with July rising to $1.94 a bushel last week over November, its largest in this marketing year. So more volatility is expected during the coming week and through July 14 when CBOT July soybeans go off the board.
“As we get closer and closer to July delivery and fewer people in that spread, it has the potential to go really ballistic,” one cash-connected CBOT trader said.
PHOTO: Newly emerged corn in north central Illinois.