China Buys Old-Crop U.S. Soybeans, New-Crop U.S. Corn

February 21, 2013 11:27 PM

What Traders are Talking About:

* Chinese soybean demand heats up. Chinese importers booked at least nine cargoes of old-crop U.S. soybeans this week amid concerns backlogs at Brazilian ports will delay shipments, according to a Reuters report citing trade sources. The sources signal at least two of those cargoes were Brazilian-origin sales that were switched to delivery from the U.S. Gulf. The remainder were switched to shipment from the U.S. PNW or new purchases. Not only is there a big backlog of ships waiting to be loaded in Brazil, but there are labor unrest concerns, which I highlighted earlier this week.

The long and short of it: China needs soybeans and will go with the reliable source, which is the U.S. right now. The longer the shipping delays out of Brazil last, the more old-crop U.S. soybeans China will purchase. As long as China is buying U.S. soybeans, old-crop futures will be well supported.

* Chinese firms also buy new-crop corn. The price of 2013-crop corn dropped far enough this week to encourage some small, private Chinese feed mills to purchase four cargoes (240,000 MT) of new-crop U.S. corn, according to Reuters, citing trade sources. The sources say the cargoes were booked at about $296 per ton, while current domestic corn prices in China are around $400 per ton. Bigger Chinese feed mills are reportedly waiting for U.S. new-crop corn prices to drop even further before booking supplies.

The long and short of it: If Chinese feed mills are starting to buy at current prices, new-crop corn futures have dropped to a "value" level. That should help limit (not eliminate) further downside risk.

* CME Group warns of possible sequestration impacts. CME Group said Thursday across-the-borad spending cuts (sequestration), should they happen on March 1, could have an impact on the physical delivery and cash settlement mechanisms of certain CME livestock and dairy products. CME Group says, "As the CME live cattle contract utilizes USDA grading/inspection in the delivery process, a furlough of USDA staff may require the Exchange to modify in accordance with Exchange rules the current operational process around delivery/settlement of these products. In addition, CME Group's cash-settled livestock and dairy products could also be impacted in the event the data used to compile these indexes is unavailable. Finally, CME Group's spot call dairy markets could be impacted in the event USDA grading/inspection staff is unavailable effective on March 1, 2013."

The long and short of it: The uncertainty of potential impacts from sequestration could be causing some liquidation in livestock futures. But demand worries are by far the bigger concern.


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