Monday, November 23, 2009

Bargain buying finished

After enjoying a good recent rally on renewed fund interest, wheat futures have taken a step backwards as money inflows eased as the $US strengthened. The recent commodities rally has made both US wheat and corn expensive and stocks are building. Recent export levels are well down, with most of the business going to Black Sea exporters.

So why the rally? One theory is that soft commodities are relatively inexpensive compared to other commodities such as gold and oil. But this might be looking too far over the fence.

While they have taken a backseat in the latest rally, soybean demand looks to be holding the soft commodities complex together. The US announced another 1.35mmt in bean export sales last week and recent weekly export levels were at a new marketing year high of over 1.7mmt, showing that China is getting the beans shipped just as quickly as they are buying them. US soybean export commitments for 2009-10 are now 59% ahead of last year’s record-setting export pace.

On the US domestic front, recent data shows crushers have stepped up their pace due to profitable margins. Likewise, canola crushing in Canada is poised to hike higher as new capacity comes online. Canola prices need to remain firm to encourage Canadian farmer selling to ensure that deliveries meet higher crush demand.

So while the oilseed sector remains positive it is hard to see wheat and corn pulling too far behind. Corn has already lost plantings to beans in Sth America and the ethanol sector looks set for a positive period.

But soon the market will look to trade weather conditions in Sth America, where traders are expecting farmers to produce a massive crop to help offset growing demand for oilseeds.

The Brazilian crop (63mmt estimate vs 57mmt last year), is off to a great start and is about 65% sown. But in Argentina only about 35% of the Argentine bean crop is planted and yield potential could start to drift lower if plantings are further delayed. Recent rain, with more in the forecast, has eased concerns and will assist planting. With China strongly signaling they need more beans, look for markets to become more responsive to fluctuations in Sth American weather over the next few months.

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