Recent China Auctions Move Markets
May 21, 2014
Corn futures were positive for most of the night before sliding lower into the morning trade break. At the moment July 14 corn is unchanged and December 14 is down just a penny. Selling has subsided in the corn market for largely technical reasons as the July 14 contract approaches the 50% Fibonacci retracement at $4.75. Fundamental factors remain negative, with rumors circulating yesterday that China is planning to cancel all outstanding old crop corn purchases from the U.S. Outstanding export sales to China currently stand at 32 million bushels, or about 4% of total corn exports projected for 2013/14. China has been a net canceller of old crop U.S. corn on a weekly basis since March and considering the state corn auction scheduled for tomorrow it appears China is in a position to cancel a large portion of old crop sales still left to ship. This information should be priced into the market given recent price action so any confirmation of these cancellations would not be overly bearish in our opinion.
November Soybeans traded out near the lows of the day yesterday after failing to break out of the highs set on April 29th. The failed breakout is typically a very strong warning signal that a change in trend could be near, but the recent volatility in the soybean market needs to be taken into consideration. One possible explanation for the selling was the China state reserve auction which was scheduled for May 20th. In the sale China’s government sold 80.9 percent of the soybeans offered compared to 92% sold in last weeks auction. The average price was reported at $690 per metric ton which was up $10 a ton from last week’s sale. Despite the negative price action we observed yesterday in the soybean complex, many traders still believe that we need to see more evidence of demand destruction for crushing plants before prices can break in a meaningful way. In the overnight session November soybeans rebounded 8 ½ cents.