July 29, 2009

Soy prices rose in Asian trading Wednesday and are likely to continue finding support in coming days from a combination of tight U.S. supply and market talk China is again looking to buy, traders said.

 

Bellwether Chicago Board of Trade soy futures rose Tuesday to settle 33.25 U.S. cents higher and extended gains Wednesday. At 0610 GMT, the August contract was up 4.00 cents at US$10.58 while November soy were up 6.00 cents at US$9.33.

 

"It's primarily a short-covering rally; the market was oversold but there's still support coming in from tight supply in the U.S. and reports that China is still in the buying mood," said Okato Shoji Co. research manager Koname Gokon.

 

Tight old crop supplies in the U.S., uncertain weather in key U.S. growing regions and bullish South American cash prices will likely keep soy prices underpinned in coming sessions, trader said.

 

Despite an absence of crop-threatening weather conditions for soy, dry pockets in the U.S. Midwest and the fourth coldest Midwest July in 118 years should provide enough uncertainty to keep a floor beneath prices, they said.

 

Despite a generally firm outlook for soy the market will continue to monitor China's plans to start offloading its huge state reserves.

 

China said it hopes to sell 500,000 metric tonnes of soy at auction Wednesday, having sold 928,300 tonnes of corn in the north and northeast Tuesday - 48% of the 1.94 million tonnes it had previously planned to sell.

 

Though corn sales fell short of the target, the volume sold was higher than the 745,900 tonnes sold a week ago.

 

"The increased volume showed there were many traders (keen on buying) staying on the sidelines last week to watch for" how the government's decision will guide the market, said Ding Lei, an analyst with the state-owned Jilin Grains Center.

 

Traders said China's sales could help underpin the market to some extent, though with state reserves currently at more than 30 million tonnes, prices are unlikely to rise much either.

 

"The government sales didn't push prices lower. On the contrary, they supported the cash prices by setting a floor price," said Wang Cheng, an analyst with Nanhua Futures Co.

 

The base auction price was set at RMB1,550/tonne, close to market prices, leaving little room for cash prices to decline, participants said.

 

Still, CBOT corn continued its recent downward momentum Wednesday, having fallen by 1.75 cents to US$3.20 a bushel Tuesday. At 0652 GMT, e-CBOT's September contract had slipped by a further 0.60 cents, and traders said a test of US$3.00/bushel still can't be ruled out in coming sessions.

 

"There's not much bullish news on the horizon for corn. There's favorable weather which is fueling expectations of a good crop in the U.S; there's a general lack of supportive fundamentals," said Okato Shoji Co's Koname Gokon.

 

"Corn will likely continue trading sideways, with strong overall support at US$3.00/bushel and strong upside resistance at US$3.40/bushel," he said.