Focus On Global End-User Demand

October 16, 2012 01:06 AM

What Traders are Talking About:

* China shopping for soybeans? Monday's hefty price decline extended the sharp pullback from the summer highs in soybean futures, but it touched off modest bargain buying in overnight trade and ignited some talk that China may soon reenter the market as a buyer of U.S. soybeans. With China's appetite for soybeans strong, especially with the government raising prices for state-owned reserves to basically in line with imported soybean prices, logic would say the price drop will attract more Chinese demand. But with futures doing technical damage yesterday, Chinese crushers may wait to see if this leads to additional near-term price pressure before pulling the trigger on more purchases.

The long and short of it: Until there are aggressive purchases by China, definitively signaling prices have fallen far enough, the short-term downtrend points to more price pressure.

* Seeking alternatives to U.S. corn. Domestic and global end-users are responding to tight supplies (and high prices) of U.S. corn by actively seeking alternatives. Japan purchased 250,000 MT of Ukrainian corn for November and December shipment overnight. South Korea, Taiwan and other global end-users are also are turning to cheaper sources of corn and feed wheat to fill needs. Additionally, livestock and poultry producers in the Southeast U.S. have confirmed 1.35 MMT of corn purchases from South America -- 750,000 MT from Brazil and 600,000 MT from Argentina -- and are reportedly looking to buy more supplies as its cheaper to import corn than to rail U.S. corn into the region.

The long and short of it: Record corn prices this summer have led to clear erosion of the demand base for U.S. corn. That threatens to put more pressure on the market near-term as prices must drop far enough to eventually rebuild demand. But tight supplies will help limit downside price risk.

* China's corn crop forecast raised. China's corn production is expected to be record large at 201 MMT this year, according to state-run China National Grain and Oils Information Center. That's up 4 MMT from the think-tank's prior estimate and would be 8.6 MMT greater than last year's then-record crop.

The long and short of it: Aggressive imports of corn last year and back-to-back record corn crops will limit China's appetite for corn during the 2012-13 marketing year. Support on the demand side very likely needs to come from other global end-users.



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