February 26, 2010

Limited soy and soymeal deliveries expected against CBOT March contracts

Deliveries against Chicago Board of Trade March soy and soymeal contracts on first notice day Friday (Feb 26) are expected to remain limited amid firm cash values and tight supplies.

Meanwhile, analysts point to large soyoil notices.

First-notice day for the contracts is Friday, which means it is the first day on which notices of intention to deliver actual commodities against futures-market positions can be received.

A tight nearby soy inventory situation amid limited farmer selling and slow grain movement due to winter snow storms are keeping cash supply holders a little concerned about losing ownership and should promote light deliveries, if any, on first notice day, said Don Roose, president of US Commodities in West Des Moines, Iowa.

Recent cancellations of CBOT soy receipts at deliverable locations were seen as a signal of tight available cash inventories as well as a precursor to low delivery intentions.

Analysts expect deliveries against the CBOT March soy contract to fall in a range of zero to 500 lots, with most analysts leaning toward zero to 200 lots. No soymeal deliveries are anticipated, while soyoil delivery notices are expected in a range of 3,000-5,000 contracts.

As of 5:00 p.m. EST Wednesday (Feb 24), 219 soy contracts, 13,923 soyoil contracts and zero soymeal contracts were registered for delivery at CBOT-approved warehouses.

Soymeal is faced with a tight supply situation similar to soy and that should limit deliveries, analysts said.

The soymeal market is inverted, showing there is strong demand for nearby supplies, and this is not a signal that receipts will be exposed to the delivery process, analysts said.

The March-May soymeal spread is trading at an inverse with the front month at a US$5 premium to the deferred contract as of midday Thursday (Feb 25), which indicates a short-term supply shortage, as market participants look to secure the products necessary to honour their deliverable positions.

"There is some chance of soymeal deliveries developing later in March if the cash market remains weak and processors position for a much smaller US soymeal export programme via keen South American competition," AgResource said in market note.

Meanwhile, a surplus of US soyoil, slower domestic food use and the absence of demand from the biodiesel industry open the door for a large quantity of soyoil receipts to be put out once again.

With demand from biodiesel producers out of the way, following the lapse of the US$1.00 tax credit for the biodiesel industry, there are no good stoppers in the market, Roose said. Particularly with the bulk of the supplies for delivery located in areas that are not attractive to end users to ship from, he added.

There are 13,923 contracts registered for delivery, with the majority of soyoil stocks in eastern Iowa, with 3,996 lots registered in Ackley, Iowa and in Volga, South Dakota with 3,088 lots registered.

Receipt holders are comfortable they can expose supplies to delivery process and get them back based on the supply locations, Roose said.