Fear Of Chinese Cancellations Hanging Over Soybean Market

January 22, 2014 12:18 AM

What Traders are Talking About:

Overnight highlights: As of 6:15 a.m. CT, corn futures are trading 1 to 2 cents higher, soybeans are mixed amid light bull spread unwinding and wheat futures are 1 to 5 cents higher with HRW and HRS futures leading gains. Cattle and hog futures are expected to open mixed this morning.


* Still expecting Chinese soybean cancellations. Rains and cooler temps that have pushed into Argentina, providing relief from heat and dryness, were the source of much of the pressure on the soybean market Tuesday, but not the only source. Traders remain fearful that China will cancel U.S. soybean purchases once the record South American crop looks certain and China is confident it can get shipments in a timely manner. While China has taken shipment on 18.8 MMT (690 million bu.) of U.S. soybeans for 2013-14, the country still has 8 MMT (294 million bu.) of outstanding soybean sales on the books. That's nearly double the outstanding soybean sales to China last year at this time and 2.62 MMT (96 million bu.) more than the five-year average.

The long and short of it: China continues to buy and actively take shipment of U.S. soybeans, but the threat of cancellations on unshipped bushels continues to hang over the market, especially when there's a favorable weather development in South America.

* China January soy imports seen up sharply from year-ago... China will likely import 5.35 MMT of soybeans this month, according to state-run China National Grain and Oils Information Center (CNGOIC). That's higher than the Ministry of Commerce's 4.61-MMT forecast. While China's January soybean imports are expected to be down sharply from the two previous months (7.4 MMT in December; 6.03 MMT in November), CNGOIC's forecast would be nearly 12% higher than year-ago.

The long and short of it: China's January soybean imports will be virtually all from the U.S. because new-crop South American supplies won't be ready for export until late February/early March if there are no harvest or logistical problems.

* China looking to establish fair target price for soybeans, cotton. China is looking for a price "that is appropriate for farmers, that farmers can accept and that the market doesn't have big problems with" as the central government replaces its old stockpiling program for soybeans and cotton this year with farmer subsidies. The head of China's top ag policy-setting office says the government will consider domestic and international prices, along with the domestic supply/demand situation when setting those prices. Farmers will be paid when the market price falls below the target price. Meanwhile, he also says China will look to maintain near full self sufficiency on wheat and rice, but will likely import more soybeans and corn to meet rising demand.

The long and short of it: The target price for soybeans shouldn't be a major market-mover as China will continue to import the bulk of its needs. But the target price China decides on for cotton (and how China handles its massive government stockpiles) could have a significant impact on import demand and therefore, prices.


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