BIG markets can have big vulnerabilities, and the soybean market demonstrated that in a big way last week.
The cancellation of more than 1.07 million metric tons of 2012-13 soybean sales caused soybean futures prices to shed nearly a $1/bu. last week on the Chicago Board of Trade.
The week of challenges started last Tuesday, when the U.S. Department of Agriculture reported the cancellation of 15.4 million bu. of export sales, 11 million of which were bound for China and the balance for "unknown destinations," which is generally assumed by the trade to also be China.
Soybeans promptly dropped nearly 30 cents.
China backed out of another 19.8 million bu. of soybean purchases last Thursday, with accumulated losses for the week pushing 90 cents, testing support near $14/bu.
With USDA reporting last month that China will account for a significant percentage of a record $145 billion U.S. export forecast, no one is assuming that China is suddenly backing away from U.S. soybeans, but China is perhaps looking to buy a chunk of its demand at more profitable prices.
Wang Qishan, China's vice premier, was in Washington, D.C., last week for the 23rd session of the U.S.-China Joint Commission on Commerce & Trade hosted by the U.S. departments of commerce and agriculture and the U.S. Trade Representative. U.S. leaders said the session underscored that much work remains to be done to open China's markets to U.S. exports and investments, but U.S. business leaders agree that China will continue to drive demand for agricultural commodities.
In a Rabobank survey of more than 350 executives in the food and agribusiness sector, when asked to name the country they believe will have the greatest impact on global agricultural commodity demand over the next decade, 61% chose China, far outpacing India (14%), Africa (10%) and Latin America (9%).
Forty-one percent of those same food and agribusiness leaders said China will continue to drive the global economy over the next 5-10 years, while 40% said China will remain the primary driver of global economic growth for the next half-century.
Agricultural commodity market volatility continues to attract a good deal of attention in the broader markets and trading world, with Barclays admitting last month that it was considering getting out of the business due to the "reputational risk" such trading can impose.
A Reuters analysis noted that commodity trading turnover for the 10 largest investment banks dropped 20% in the first nine months of this year.
Despite last week's export-related challenges, soybean demand remained strong, with the National Oilseed Processors Assn. (NOPA) reporting that the November soybean crush was the second largest on record at 157.3 million bu.
Market analyst Jerry Gidel at Rice Dairy noted that with roughly 5% of U.S. soybean processing capacity not represented by NOPA, the crush was likely close to 165 million bu., and the first-quarter domestic crushing pace likely exceeded 453 million bu. -- the largest crush in five years.
Even so, the relative competitiveness of the U.S. agriculture sector in the global market remains important. USDA's Economic Research Service (ERS) noted that Brazil has surpassed the U.S. as the world's leading exporter of soybeans (Figure). Brazil's production has grown significantly in recent years, and its soybean exports are projected to continue increasing over the next decade.
ERS noted that in 2011, Brazil accounted for more than 32% of the global trade in soybeans and soybean products.
Infrastructure will play a critical role in determining how competitive U.S. soybeans -- and corn and wheat -- will be on the global market in the years to come. Efficient transport of grain and oilseeds from growing regions to export terminals is a cornerstone of the competitive advantage for U.S. agriculture.
Ongoing issues with shipping products via the drought-parched Mississippi River underscore the vulnerability of that advantage. Last week, the U.S. Army Corps of Engineers began excavation of rock pinnacles along a six-mile stretch of the river near Thebes, Ill., noting that successful use of excavation barges has precluded the need for blasting -- for now.
The Corps said it expects little disruption to commercial traffic in the coming months despite continued concerns from the industries that rely on the river to move billions of dollars worth of goods up and down the inland waterway system.
While the Corps has refused to release additional water from reservoirs on the Missouri River to maintain navigation channels on the Mississippi River, it did speed up plans to excavate the pinnacles and continue dredging work.
After dropping nearly $1/bu. through the first four days of trading last week, soybeans bounced off support near $14 in early trading last Friday, picking up nearly 25 cents by mid-session. Traders looking to buy on the massive break got back in the market in relatively light pre-holiday trading.
Corn and wheat, likewise, followed soybeans lower last week, with corn notching losses in 10 of 11 trading sessions by last Thursday's settlement. Corn prices traded near the 200-day moving average, falling below $7/bu., but held in early trading last Friday despite continued disappointment in the export business.
Data from the Energy Information Administration showed lighter demand for ethanol, with production down for a second straight week and stocks up 4% to their largest levels since June. While gasoline demand hit its highest level in a month, ethanol production as a percentage of daily gasoline demand fell for the third week in a row.
Markets will continue to be mindful of the role prices play in determining planting intentions for next season. While many farmers have already locked in corn and soybean seed purchases for 2013, significant changes in price will cause shifts from one crop to another.
Informa Economics last week revised its estimates for 2013 U.S. planting intentions, lowering its soybean area from 80.10 million to 78.96 million acres and increasing corn area from 97.70 million to 99.03 million acres. Informa also lowered its estimate for wheat planting by 300,000 acres and increased cotton plantings by 65,000 acres.
Protein marketers -- and buyers -- watched soybean meal prices closely last week. With meal prices falling alongside soybeans, substitute products lost a bit of their "bargain" status. Meat and bone meal markets remained burdened with plenty of product and stagnant demand, and savvy marketers continued to search for overseas customers to sop up extra supplies.
Pork meal prices firmed last week as that market generally has a little more liquidity and additional options for sellers to exploit.
Poultry and feather meal prices ticked up slightly last week, with one analyst telling Feedstuffs that those markets have found their bottom and will continue to trend higher in the coming weeks. Demand from the export market has helped turn prices around in that trade.
Fish meal prices also firmed again last week, with tight supplies driving buyers to other substitute products.
Renderers and exporters are closely watching the potential for a port and dock worker strike, reportedly coming as soon as Dec. 29.
"How long will it last, and will we be able to load and ship product?" one trader pondered last week, noting that a prolonged strike will put a significant strain on the ingredient trade.