October 22, 2010

US soy advances to 14-month high

US soy futures hit a new 14-month high in the day's trading on strong export demand and a broader rebound in commodities.

CBOT soy futures for November delivery, the most active contract, rose US$0.27 to US$12.07 a bushel, eclipsing its recent high-water mark set Friday (Oct 22) at US$12.0425.

A decision this week by China to raise interest rates pushed soy and most other commodities lower on Tuesday (Oct 19) on fears that demand would be curbed. But the change isn't expected to make a sizable dent in China's consumption of global raw materials overall, reversing the pullback in commodities, said Dan Basse, president AgResource Company.

Strong export demand for US soy, particularly from China, is keeping prices at these levels. The USDA announced Wednesday (Oct 20) that private exporters reported 180,000 tonnes of US soy.

Further adding to expectations of a rebound in futures Wednesday (Oct 20) was declines in the US dollar from Tuesday's (Oct 19) sharp gains. A weaker dollar makes US commodities cheaper for foreign buyers, helping prompt a rally across commodities, including crude oil and gold, which rebounded in early trade.

Tuesday's (Oct 19) rally in the US dollar sparked thoughts of the greenback bottoming from its recent spiral. However, that assumption was "thrown out the window" Wednesday (Oct 20), with the slide in the dollar generating a general surge into commodities, said Sterling Smith, market analyst with Country Hedging in St. Paul, Minnesota.

"Continued global soybean consumption, coupled with a weaker US dollar, are benefiting soybean futures' uptrend, with demand outweighing any talk of higher crop outlooks," Mr. Smith added.

Meanwhile, as the fall harvest wraps up, cash prices are starting to strengthen and should provide some underlying support for futures. Soy growers tend to sell crops early in the harvest to meet cash needs, but then pull back and store more crops in hopes of capturing higher prices.

Improved weather for South American plantings have capped some gains, as any improved crop outlooks in Brazil and Argentina take pressure off US supplies, a CBOT floor trader said.