China Corn Shopping Spree Continues

October 16, 2013 01:18 AM

What Traders are Talking About:

Overnight highlights: As of 6:15 a.m. CT, corn futures are fractionally to 1 cent higher, soybeans are 5 to 7 cents higher and wheat futures are narrowly mixed. Demand news is the key. Days when there is demand talk, futures have sustained buying interest. Days when demand news is lacking, overnight buying interest has tended to fade during the day session. Cattle futures are expected to be mixed this morning as traders wait on cash cattle trade to develop. Lean hog futures are called mildly weaker on light profit-taking.


* China buys more 'cheap' U.S. corn. Talk of Chinese purchases of U.S. corn swirled through the corn market yesterday, giving futures support. Export sources confirmed to Reuters private Chinese firms have purchased four to five cargoes (up to 300,000 MT) of U.S. corn this week and are shopping for more. The purchases this week were reportedly booked for spring 2014 delivery and were made at prices that are around 25% cheaper than domestic Chinese prices. These purchases are on top of the 420,000 MT of U.S. corn and private Chinese firm made last week. Private firms are making purchases now after the recent sharp price break with intentions of using low-tariff import quotas that will be available in 2014 as corn import quotas allocated to the private sector have been fully exhausted for this year.

The long and short of it: With U.S. corn prices well under Chinese prices, additional corn demand is likely. This is the type of demand the corn market needs to put in a seasonal low, but consistent buying is needed to fuel a sustained price recovery. I also expect China is using the recent price break to book more U.S. soybeans.

* Going to the brink. Negotiations in Washington, D.C. regarding the debt ceiling and funding the government hit more snags on Tuesday, though it appears the Senate is prepared to unveil a plan to reopen the government and raise the debt ceiling, possibly by this morning. Tomorrow, Oct. 17, is the day the Treasury Department has said the U.S. will start defaulting on debt obligations if the debt ceiling isn't raised, though private sources say the likely default date is closer to the end of the month, which appears to be the case. With the U.S. on the brink of defaulting, credit rating agency Fitch has warned of a potential ratings downgrade for the United States.

The long and short of it: The government shutdown has been an annoyance, but if the U.S. defaults on its obligations and/or sees its credit rating cut, the level of concern among traders will escalate. Expect a last-second agreement to keep the U.S. from defaulting, though it looks like any such deal will do little more than kick the can down the road.

* China staying conservative on wheat import forecast. The head of China's state-run grain trading firm, COFCO, says the country may import 3 MMT to 5 MMT of wheat in 2013-14, which is well below other estimates. Some private estimates put Chinese wheat imports in the current marketing year as high as 10 MMT, while USDA's last forecast (in September) had Chinese wheat imports at 9.5 MMT, up sharply from 2.96 MMT in 2012-13..

The long and short of it: Given drought/dryness concerns in China's top two winter wheat production regions, odds are Chinese wheat imports will increase much more than the COFCO official is indicating. The low wheat import forecast by the COFCO official may be a sign China is about to book a big purchase(s) of wheat.


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