The Morning Vibe
16/11/12 -- The overnight electronic market is lower, with beans extending their run of bad luck, down around 5-8 cents, with wheat 1-3 cents weaker and corn a cent or so firmer.
Beans are now at levels not seen since June as funds continue to dump their longs, with Jan 13 almost USD4/bu off the August highs for a drop of almost 22%.
The six million dollar question is "is this a buying opportunity?" or are we still going lower yet? The answer to the latter depends on the enigmatic funds themselves. They're still long, they're just not as long as they used to be. In fact last Friday's Committment of Traders report showed them sitting on their smallest long since March (as of last Tuesday night).
They've been estimated as a net seller in 5 of the 7 sessions since then, exiting an estimated further 20,000 contracts by my calculations.
The reasons? The upcoming monster South American crop that has been predicted for some time now? Well, the current production numbers from the USDA for Brazil and Argentina are the same as the ones they were using when the market was peaking in August.
This seems to be more about a general "risk-off" move. The Dow bottomed around 12,100 in June, rallied to around 13,600 by September and finished at 12,542 last night. NYMEX crude was USD80/barrel in June, peaked at around USD100/barrel in September and is currently back around USD85/barrel. A remarkably similar pattern to Chicago beans.
No matter what the futures market does though, the bottom line is that you can't eat paper.
Producer selling in the US is light at these levels. The cash market is firm. Basis bids for soybeans in the US Gulf barge market are higher now than they were 2 1/2 months ago when the US soybean harvest was only just beginning.
Now low water forecasts for the Mississippi in early December are threatening to disrupt shipping from the only supplier that the world has got until the South American crop comes on stream.
Export data from the USDA this afternoon will be of interest. The US shipped the most soybeans in a week than it had for two years last week at 1.75 MMT and export inspections on Tuesday were a similarly robust 64 million bushels.
When Brazil does start harvesting the domestic crushers will be wanting the early beans for themselves. Then we will quickly run into the usual logistical problems, vessels backing up, disruptions on the roads, opportunist strikes. The whole physical soya market is screaming front-end tightness for some considerable time to come to me.
Japan was recently said to have been forced to buy 500 TMT of US corn due to congestion at Brazilian ports leading to shipping delays of up to two months on existing purchases from South America.
Taiwan are also said to now be turning to the US to cover corn requirements already previously booked with Brazil due to similar problems. And all this is going on whilst Brazil is essentially out of the soybean export market, Lord knows what things will be like if and when they have a record soybean crop on their hands too.