Chinese Soybean Demand Forecast To Stay Strong

April 17, 2012 04:37 AM

What Traders are Talking About:

* China soy demand to stay strong amid favorable crush margins. Chinese soy processors are working with favorable margins, giving them incentive to crush more soybeans. As a result, Chinese soybean imports are expected to remain strong. State-run China National Grain and Oils Information Center (CNGOIC) forecasts second quarter soybean imports will total 15.3 MMT compared to 13.33 MMT for the April through June period last year. While soybean imports are rising, port stocks continue to tighten. CNGOIC says soybeans held at port facilities will decline to around 5.5 MMT at the end of this month compared to 6 MMT at the end of March and 7 MMT in mid-February.

The long and short of it: Continued strong Chinese demand will keep a solid floor of support under the soybean market, especially if China continue to actively buy U.S. beans amid concerns with South American supplies.

* Retry on crop progress. The normal Monday afternoon release of weekly crop progress/condition data was delayed due to a small fire at USDA yesterday, so USDA will try again this afternoon. Traders are expecting USDA to show corn planting as of Sunday at 17% to 20% complete. While still aggressive, the recent cooler overnight temps and last weekend's rainfall slowed planting efforts across much of the Midwest. Meanwhile, Reuters ran a story Monday signaling some farmers are switching some acres from corn to soybeans given the recent price performance. The crux of the story was that because the soybean market is buying some additional acres, there shouldn't be a major concern with corn seed availability as some extra seed will now be freed up.

The long and short of it: While the pace has slowed some from what was expected to be record-quick corn seedings, the corn crop is still expected to be planted relatively early. That will make it hard to attract sustained buying interest to the corn market near-term -- and could put additional pressure on futures.

* Risk switch flipped to 'on.' Investors started the week with a risk-off attitude, but by the end of yesterday, those attitudes were starting to shift as positive U.S. retail sales data overshadowed concerns about Chinese economic growth and debt concerns in Spain. The risk switch is fully "on" today, with risky assets such as commodities and stocks higher, while the U.S. dollar is weaker.

The long and short of it: If we get into a daily flip-flopping of risk, outside influences could lead to choppy trade in grain and soy futures. But it could also make grain and soy traders put more focus on fundamentals if the spillover influence from outside markets isn't strong.


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