May 31, 2012

 

US soy futures hike on tight supply notice

 

 

US soy futures increased on Tuesday (May 29) amid views that insolvency in the oilseed had gone far enough already, on estimates that stocks may end up even tighter than speculations.

 

Corn and wheat futures fell more than 3% in Chicago, and oats at one point plunged more than 6% to their lowest since September 2010, as rains in Russia, and better-than-expected US harvest results eased concerns for winter grains harvests.

 

However, soy held their ground, helped by a double caution to sellers from Oil World, the influential analysis group, which warned further cuts may be on their way to Argentina's soy production, and that investors may be underestimating Chinese demand.

 

Many investors have sold out of soy on fears that prices which earlier this month topped US$15 a bushel in Chicago for the first time in nearly three years would scare off buyers, causing the benchmark July futures contract to lose more than US$1 a bushel.

 

And their concerns were given some justification last week, when a Chinese trading house was revealed to have washed out four soy import cargos.

 

However, Oil World said that China's demand remained undiminished, and would hit 56.8 million tonnes in 2011-12, a rise of 4.5 million tonnes year on year.

 

It is also above the 56-million-tonne forecast from the USDA, whose estimates set global benchmarks and may yet prove an underestimate.

 

"With the recent purchases and vessel line-ups this quantity may actually turn out on the low side," it said.

 

"Additional sizeable increases in (Chinese) imports will be required next season in view of the prospective further decline in Chinese oilseed production and rising domestic requirements."

 

The order cancellations reflected a desire to exploit the tumble in values this month.

 

"Of course China needs these quantities but is going to buy them at lower prices," Oil World said.

 

Soy bulls were given an extra boost by Australia & New Zealand Bank, which said that, even if US soy sowings beat initial expectations, they will not go far in alleviating global supplies weakened by poor South American crops.

 

Even if US plantings were underestimated in a benchmark March 30 report by three million acres, the biggest difference between then and final sowings in the last 30 years, farmers would reap "only" an extra 3.6 million tonnes, assuming a yield of 43.9 million tonnes.

 

That extra crop would be "significant domestically but marginal on a global scale. New crop stocks will remain very tight", ANZ analyst Victor Thianpiriya said.

 

This was, indeed, driving increasing interest by speculators in the new crop contracts, even as they have slashed holdings in old crop lots.

 

"Fundamentals are still supportive for new crop soybeans, and this is being reflected in market positioning," Thianpiriya said.

 

Oil World based its caution over further cuts to hopes for the Argentine crop on the floods now besetting a crop already tested by drought and frost, and highlighted last week by the Buenos Aires grains exchange.

 

"The Argentine soybean crop remains in trouble as acreage abandonment is exceeding expectations as a result of severe drought in the northern states as well as the latest flooding in parts of the Buenos Aires province," Oil World said.

 

It was "possible" that the crop may end up at 39-40 million tonnes, down from 49.2 million tonnes, said the German-based group, which currently sees the harvest coming at 40.5 million tonnes.

 

The Buenos Aires grains exchange cut its estimate to 39.9 million tonnes.