Trends in commodity markets are a little confusing at the moment. Both corn and soybean markets are indicating strength at a time when supplies are bulging. Weather has been ideal for corn planting and paddock preparation in the US and it seems planting pace may be on track to eclipse all-time fastest ever records. The record planting pace was recorded in 2004 - ominously also the year of record US corn yields.
It is thought that the poor quality of the 2009 corn crop could be at the centre of strength in the US corn market. Poor corn quality has been associated with lower average kill weights in the US for cattle and pigs. Feeders are now recognizing this and are willing to pay up for better quality corn which is helping to strengthen corn cash prices.
News that the Chinese Government continues to aggressively sell corn out of state reserves in order to cool domestic prices is another promising sign for the demand side of the corn story. This is a tangible indication that either production has faltered or demand is running higher than planned. Normally such action normally precedes a lift in imports for said commodity.
In soybeans, issues with getting Sth American beans to markets seem to be providing nearby market strength. Aiding this has been ongoing strong demand for ever shrinking US soybean supplies. But posturing by China in an ongoing trade dispute with Argentina may also be lending support from left-field.
In another display of the power that China yields in commodity markets, its banning of Argentine soyoil imports could lend ongoing support to US soybean futures.
The Chinese government has urged soyoil importers to not buy from Argentina as it has started an anti-dumping investigation against some Chinese products, including shoes, steel pipes and ignitors. It’s thought Chinese importers have booked soyoil imports from Argentina amounting to 200-250,000mmt per month for May, June and July. Those purchases will likely be canceled, sending demand to the US, Brazil and palm oil suppliers.
To date, none of this has translated to better returns for Aussie producers and it remains to be seen if these trends will be sustainable. Local markets are paralysed by poor liquidity at the moment as local producers are unwilling to sell at current prices which are already above what importers are willing to pay.