Chinese Soybean Cancellation Talk Heats Up

January 30, 2014 12:17 AM

What Traders are Talking About:

Overnight highlights: As of 6:15 a.m. CT, corn futures are trading around a penny higher, soybeans are 3 to 5 cents lower in old-crop contracts and around 1 cent lower in new-crop contracts, while wheat futures are 1 to 3 cents higher. Unless weekly export sales are very strong, there's risk soybean futures pull corn and wheat futures lower during the daytime hours. Cattle futures are seen opening with a slightly weaker tone while hog futures are called mixed.


* Chinese soybean cancellation talk builds. Trade talk yesterday put Chinese cancellations of U.S. soybeans at 300,000 MT to 400,000 MT, though nothing has been confirmed. With nearly 7.357 MMT of outstanding soybean sales on the books to China for 2013-14 and South America moving closer by the day to realizing a record crop, some Chinese cancellations are widely expected. In fact, it would be bigger news if China takes delivery on all of those purchases than if there are some cancellations. Still, even the rumor of cancellations is price-negative.

The long and short of it: Until there's confirmation of Chinese cancellations, the best barometer will be river basis for barges headed to the Gulf. River basis was weaker yesterday, suggesting exporters have plentiful supplies at the Gulf, which could suggest there have been some cancellations.

* Chinese soy export news likely to dry up. China begins its extended Lunar New Year celebration Friday. While Chinese firms will have workers at international trading houses during the national holiday, export news typically grinds to a halt. Don't expect many, if any Chinese purchases to be announced over the coming week-plus. While the market isn't likely to get news of Chinese purchases, it wouldn't be surprising to see talk of coming Chinese cancellations continue. A lack of export demand activity alone could be enough to spur more talk that China is looking to cancel some purchases.

The long and short of it: There is risk near-term price pressure will build in the soybean market amid a lack of Chinese demand news and the possibility of additional cancellation talk.

* Strong yields on early harvested Brazilian beans. Early harvest results from Brazil's top soybean production state of Mato Grosso are generally coming in even better than anticipated. And some of those early harvested beans are already making their way to port, which is earlier than normal. The first shipment of new-crop soybeans from the Port of Paranagua left the port earlier this week and two more ships are loading and will be en route soon. As I reported Monday, Brazilian shipping agents are expecting record soybean shipments in February.

The long and short of it: Brazil made several changes to increase efficiency at ports and limit the extreme bottlenecks faced last year. But time will tell if the country's infrastructure and port system is able to handle the record crop, which is expected to be nearly 10% bigger than last year's then-record crop.


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