US export warning undermines soybean rally - but wheat futures soar


Soybean futures fell after officials punctured optimism over US exports of the oilseed by warning over rivalry from South America – contrasting with optimism on wheat shipments which buoyed prices of the grain.

The US Department of Agriculture, in its benchmark monthly Wasde crop report, left unchanged at 420m bushels its forecast for domestic soybean stocks at the close of 2016-17 – surprising investors, who had expected a downgrade to the figure thanks to a strong export performance.

"The unchanged domestic soybean ending stocks number caught the trade off-guard," broker Benson Quinn Commodities said.

Indeed, separate data on Thursday underlined the strength of US shipment, pegging total export commitments– that is, completed shipments and outstanding sales combined – so far this season at 51.0m tonnes.

That represents rise of 21% year on year, and is only narrowly short of the 55.8m tonnes the USDA forecasts for the whole of 2016-17, which is less than half way through.

Export competition

However, while acknowledging that "soybean export commitments through January are significantly higher than a year ago", the USDA forecast a lasting slowdown ahead, as buyers turn to supplies from the likes of Brazil, where the harvest is ramping up.

Wasde 2016-17 soy data, change on previous, and (on market forecast)

US carryout stocks: 420m bushels, unchanged, (+10m bushels)

World carryout stocks: 80.38m tonnes, -1.94m tonnes, (-550,000 tonnes)

Argentine output: 55.5m tonnes, -1.5m tonnes, (-40,000 tonnes)

Brazilian output: 104.0m tonnes, unchanged, (-80,000 tonnes)

Sources: USDA, Agrimoney, Reuters

"Competition from expected record South American exports will limit US shipments to well below last year's record levels this summer," the ministry said in the Wasde.
The comments came even as the USDA cut by 1.5m tonnes to 55.5m tonnes its forecast for the soybean harvest in Argentina, following inundations which have destroyed some crops and hampered plantings.

"Heavy rain impacted the expected harvested area," the ministry said.

Nonetheless, it maintained at 9.0m tonnes its forecast for soybean exports this season from Argentina, the third-ranked shipper behind Brazil and the US.

'Strong export pace'

The impact on prices was to send soybean futures for March, which had stood in positive territory ahead of the Wasde, to $10.45 a bushel immediately afterwards, a drop of 1.3% on the day.

Wasde 2016-17 wheat data, change on previous and (on market forecast)

US carryout stocks: 1.139bn bushels, -47m bushels, (-41m bushels)

World carryout stocks: 248.61m tonnes, -4.68m tonnes, (-4.52m tonnes)

Sources: USDA, Agrimoney, Reuters

By contrast, wheat futures extended headway, touching $4.42 a bushel in Chicago for March delivery, a gain of 2.2% for the session, and the highest for a spot contract in seven months.

The USDA, in the Wasde, reduced expectations for the rise in US inventories this season, citing a "strong pace to date" for wheat exports, now seen hitting a four-year high of 27.9m tonnes this season, an upgrade of 1.4m tonnes from last month's estimate.

Thursday's separate ag trade report showed US wheat export commitments at 23.4m tonnes so far this season, a rise of 37% year on year.

India downgrade

At a global level too, the USDA cut its forecast for carryout stocks by more than investors had forecast, by 4.7m tonnes to 248.6m tonnes, although that would still represent a record high.

Besides the cut to domestic stocks expectations, the ministry also trimmed its forecast for Ukraine, to reflect ideas that exports will hit 16.5m tonnes in 2016-17 – 800,000 tonnes more than had been thought, and the second biggest on record.

And the forecast for Indian wheat stocks at the close of 2016-17 was slashed by 3.0m tonnes to a nine-year low of 8.0m tonnes, as USDA officials sided with private commentators in estimating that last year's harvest was far lower than New Delhi has suggested.

"Indian production is lowered 3.0m tonnes to 87.0m,which is well below the latest government of India estimate," the USDA said.

China downgrade

In corn, the USDA trimmed its forecast for domestic inventories at the close of this season by 35m bushels to 2.32bn bushels, a marginally bigger downgrade than investors had expecting, citing increased expectations for use of the grain, in particular by US biofuel plants.

Wasde 2016-17 corn data, change on previous, and (on market forecast)

US carryout stocks: 2.320bn bushels, -35m bushels, (-15m bushels)

World carryout stocks: 217.56m tonnes, -3.42m tonnes, (-2.87m tonnes)

Argentine output: 36.5m tonnes, unchanged, (+720,000 tonnes)

Brazilian output: 86.5m tonnes, unchanged, (-550,000 tonnes)

Sources: USDA, Agrimoney, Reuters

The ministry cited a "strong pace of weekly ethanol production during January", as shown by Energy Information Administration data.

And the world inventory forecast was reduced too by more than investors had expected, thanks to perceived success by China in stimulating its consumption, amid a drive to run down its mammoth stockpiles of the grain.

In China, "lower prices and government support are expected to boost domestic use and exports of corn-based industrial products".

Trade recommendations

In Chicago, corn futures for March, recovering from an initial decline, stood at $3.71 a bushel an hour after the report, little changed from their level before the Wasde, or indeed from the close of the last session.

However, some commentators flagged the potential for the Wasde data to spur outperformance of corn, and wheat, futures, compared with those in soybeans.

Terry Reilly at Futures International recommended "buying corn/selling soybeans over short term," adding that "we also like buying wheat against soybeans".

"We may see new medium-term contract highs in March corn by the end of this month on good US export demand."

At Global Commodity Analytics, Mike Zuzolo said that "given the [Wasde] report showed increased demand for both wheat and corn today, the corn-soybean spread could continue to be utilised by investors in my view.

"I could see the corn and wheat [futures] attempt to gain, and soybeans remain mostly sideways until more is seen out of South America."


Readers choice: TOP-5 articles of the month by UkrAgroConsult