Chicago | Reuters — U.S. soybean futures dropped 1.8 per cent on Wednesday on worries about waning demand from China, the world’s top buyer of the oilseed.
Traders said there was talk that China had backed out of previously agreed purchases of both U.S. and Brazilian soy supplies, which could leave a glut of soybeans on the market. There was no confirmation of any cancellations.
“Demand has clearly weakened and this has given rise to talk of Chinese cancellations,” said Sterling Smith, Citigroup market strategist.
The weakness in soybeans forced investors to back out of some long soybean/short wheat spreads they have built up in recent months, contributing to a 3.3 per cent gain in wheat prices. The front-month Chicago Board of Trade soft red winter wheat contract topped out at its highest since Oct. 30.
“It is unwinding of inter-market spreads,” said Tom Fritz, partner with EFG Group in Chicago. For the longest time, guys were short wheat and long corn, long beans. So you are getting out of that.”
The wheat market received additional support from uncertainty about whether the political upheaval in Ukraine will disrupt shipments from that key exporter.
CBOT oats also soared, rallying 17 per cent to an all-time high due to severe logistical problems that have snarled traffic on Canadian railroads, slowing shipments from the top exporter of the grain.
CBOT May soybeans settled 26 cents lower at $13.87 a bushel (all figures US$). The front-month contract hit its lowest since Feb. 21 during Wednesday’s session.
Soybeans have fallen for three consecutive days, shedding 5.2 per cent, following the release of worrisome economic data from China that raised questions about its appetite for soybeans.
“The hedge funds have lost faith in the China story, thinking their economy is in the tank, and their bean longs have been a big part of that story,” Charlie Sernatinger, analyst with ED+F Man Capital, said in a note to clients.
Market watchers had long expected that China would renege on some U.S. purchase agreements as cheaper supplies from Brazil and Argentina arrived at export ports following harvest.
But the market had not factored in the possible cancellation of some Brazilian deals. Those fresh concerns negated any bullish impact from the Brazilian government’s surprisingly large cut to its production estimate for the country.
CBOT May wheat, which surged through its 200-day moving average early in the session, was 24-3/4 cents higher at $6.83-3/4 a bushel.
“You have also got new money piling into the wheat market; it’s the new darling for the bull market,” EFG Group’s Fritz said. “I think it’s a combination of fears over the Ukraine (and) fears about crop conditions in the central and southern Plains.”
Most of the spring grain area in Crimea is unlikely to be sown this year due to a lack of fuel caused by turmoil in the region.
The U.S. Agriculture Department’s Foreign Agricultural Service issued a report on Ukraine’s planting prospects but made no mention of the political unrest in the country.
Corn futures rose, supported by gains in the wheat market as well as jitters about Ukraine. Corn dipped during the overnight session before technical buyers stepped in when the market fell below its 200-day moving average.
Corn prices remained supported by concerns that plantings could be delayed in the U.S. Midwest due to frozen ground following the frigid winter.
CBOT corn for May delivery was up 5-1/4 cents at $4.88-1/2 a bushel.
— Mark Weinraub is a Reuters correspondent covering grain markets from Chicago. Additional reporting for Reuters by Julie Ingwersen in Chicago.