Sept. 17, 2013
Prices are being pushed downward as the world is set to produce big oilseed crops. Farmers in Europe, which has just harvested its rapeseed crop, are holding supplies back in the hope of a recovery.
The International Grains Council (IGC), in its most recent Grain Market Report, reported a 13% month-on-month (m/m) fall in its IGC GOI soybean sub-index as weather conditions have bolstered forecasts for a bumper crop. “In addition to fundamentally driven falls in the U.S. and South America, the steep decline was also partly due to the switch from old to new crop (October) Gulf export quotations,” it said.
It “tentatively predicted” a 6% year-on-year rise in world soybean production in 2013-14, with trade up 9% as demand grows in China. The IGC also predicted a 4% rise in rapeseed/canola output in 2013-14 to reach a new record, although it expects high prices and tight availabilities to limit consumption growth to 1%.
The IGC also noted a m/m rise of 4% in U.S. futures. “Tight supplies and firm cash markets initially supported spot futures, while concerns about the impact of hot and dry weather on U.S. yield potential further underpinned,” it said. “However, USDA’s supply and demand update, released on July 11, underscored prospects for a record 2013-14 outturn and a significant recovery in carryover stocks.
“More recently, nearby futures posted steep declines on increased farmer selling, with the unwinding of old/new crop spreads adding to bearish sentiment. With spot futures falling relatively more steeply than deferred contracts, the old/new crop (Aug./Nov.) futures premium narrowed significantly, by 6% m/m, to just $1.68/bushel.”
Elsewhere, new crop values in Brazil declined by around $21, to $496 fob (Paranagua), while quotations in Argentina fell by around $34, to $505 fob (Up River), with the heavy fall in futures outweighing the impact of firmer basis levels, the IGC said.
For rapeseed, the IGC projected a record 63.8-million-tonne global crop in 2013-14, a year-on-year rise of 4%, noting there will be larger crops in the northern hemisphere, notably in Canada, the E.U. and Ukraine.
“After initially rising, mainly on support from strength in soybeans, nearby (November) ICE (Winnipeg) canola futures declined steeply, falling by 9% m/m, to near three-year lows,” the IGC said. “Values were weighed by technical selling, favorable crop conditions and currency movements. In addition to an anticipated larger crop in Canada, similar prospects elsewhere in the northern hemisphere, most notably in the E.U. (Germany) and Ukraine, were bearish. More recently, steep falls in nearby U.S. soybean futures added to the negative tone, but overall declines were limited by a slowdown in farmer selling and a generally tight fundamental outlook.”
Low values mean that European rapeseed producers are being slow to sell what has been a late-harvested crop. “The market has really been starved,” John Thorpe, senior oilseeds trader at British traders Openfield, told World Grain. “There is not much going on because they don’t like the prices.”
That has left merchants short of rapeseed to fulfill export orders and crushers short of supply to keep plants running. “If it is the case now that people are scrabbling around, what’s going to happen in September, October, November or December,” he said. “If prices don’t go up, the farmer won’t sell it.”
In a report on the market, Rabobank noted bearish new crop price direction on soybeans, warning of the possibility of weather-related volatility. It also noted that Chinese imports picked up in June and are expected to gain strength going forward.
“While U.S. soybean supplies are still very tight in the old crop positions, the underlying price direction for soybeans continues to be bearish in expectation of a record U.S. crop,” it said. “New crop planted area was estimated by USDA at a record level of 77.7 million, implying that, weather permitting, the U.S. soy crop will be large enough to ease the current tightness, doubling stocks to use from 4.5% to 9%. This is the highest level since the 2006-07 season, and the main reason behind the bearish trend in new crop soy prices.”
“China’s soybean imports picked up in the last two months, with June imports just below 7 million tonnes, a 23% increase year-on-year,” Rabobank said. “Total imports for first-half 2013 were officially reported at 27.5 million tonnes, with Brazil as the main supplier with 48.5% of the total, followed by the U.S. (45.6%). In June, however, exports from the U.S. to China were almost nil, while Brazil provided 5.7 million tonnes, and Argentina just under a million.”
Rabobank also explained that South America’s new crop production plans contribute to the bearish price scenario.
“Farmers in Brazil and Argentina are starting to commit to their 2013-14 planting plans,” it said. “Despite the overall bearish price scenario, we expect soybean acreage to increase both in Argentina and in Brazil. In Argentina, two things bias farmers toward soybeans. One is the lack of intervention in export markets. The other is the lower upfront planting cost and higher margins that soybeans provide.”