CNS Canada — Chicago Board of Trade (CBOT) soybean futures moved lower during the week ended Wednesday and could continue drifting downward as there’s not much positive underpinning the market.
“There’s talk of China slowing down demand, we’ve seen the seasonal top in export inspections, and Chinese crush margins are running right around negative,” said Frank LaPlaca, vice-president of commodities at Futures International in Chicago.
A technical breakdown in the soybean market and a shift in market sentiment were also leading to price weakness during the week.
“We’ve also seen the commercials take control in the market at these higher levels, so the money flow has begun to change,” LaPlaca said.
It’s unlikely the soybean market will be able to sustain the $10 per bushel price, due to a very large U.S. soybean carryout of 400 million bushels, a large South American crop and falling petroleum prices (all figures US$).
“Even $9 per bushel may be something the market can’t hold on to once we see the big crops out of Brazil and Argentina,” LaPlaca said.
One of the only supportive factors is strong demand from domestic crushers, with margins running about $2 over, he added.
CBOT corn futures lost nearly $10 per bushel during the week ended Wednesday, with the falling crude oil market helping to drive prices lower.
“Ethanol margins are beginning to get pressed because of the break in petroleum,” LaPlaca said.
“A bad spot”
Corn has also been a follower of other commodities lately, with soybeans and wheat helping to underpin the market over the past few weeks.
But wheat and soybeans have started to fall, and corn is likely to go along for the ride. A large carryout of about two billion bushels and a heavy hedge fund are also likely to weigh on corn.
“Also, you’ve seen a lack of export business because of the fact that so much space has been given to the soybeans,” LaPlaca added.
There will need to be a bump up in prices to encourage corn acreage for the spring of 2015, but traders aren’t getting too excited about that yet.
“It’s too early to be long because of acreage, and it’s really not a good idea to be long in the front months because of the size of the carryout,” said LaPlaca.
“Corn is really positioned in a bad spot. It has no potential as a leader, so it’s really following the macro news and the other components of the grain complex.”
— Terryn Shiells writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.