Limited rebound for agricultural futures; good times hard to sustain for most varieties
Affected by the USDA inventory and planting area report, agricultural futures such as soybeans, wheat and corn on the Chicago market surged collectively, and China's commodity market also reversed its decline, with most varieties closing higher. Yesterday, the agricultural products sector of China's futures market performed particularly strongly, with soybean meal and rapeseed meal leading the commodities, both closing at their daily limit-up; the oils and fats sector posted the largest gains. Some analysts pointed out that with the arrival of the August peak season, and with international oil prices rising and the strong dollar facing an end, agricultural products may see a round of overall rebound, but this is unlikely to usher in a major bull market, and the rebound may be limited in extent.
USDA report ignites agricultural products
The USDA recently said that as of June 1, domestic corn inventories stood at 4.447 billion bushels, the highest for the same period since 1988 and the fifth-highest on record; soybean inventories stood at 625 million bushels; and wheat inventories rose to 753 million bushels. In the same period last year, US corn, soybean and wheat inventories were 3.852 billion bushels, 405 million bushels and 590 million bushels, respectively.
Obviously, current US soybean, wheat and corn inventories are all higher than year-earlier levels. But according to prior market expectations, corn inventories were expected at 4.555 billion bushels, soybean inventories at 670 million bushels and wheat inventories at 718 million bushels. Clearly, corn and soybean inventory levels came in below expectations. Analysts believe this very likely reflects strong demand consumption.
The data also show that corn usage during March-May totaled 3.303 billion bushels, the second-highest for the same period on record; quarterly soybean usage was 701 million bushels, the fourth-highest for the same period on record.
Affected by this report, overseas agricultural products surged overnight. US soybeans jumped 5.84%, the largest single-day gain since 2010; corn futures surged 7.27% on Tuesday, the largest single-day gain in five years; wheat futures surged 5.53% on Tuesday to a six-month high.
Domestic agricultural futures also surged collectively. As of yesterday's close, rapeseed meal and soybean meal both hit their daily limit-up, rapeseed, soybean oil and palm oil rose more than 2%, and rapeseed oil and corn also rose 1.41% and 1.25% respectively; in addition, the Zhengzhou cotton main 1509 contract rose 0.86% to 12,850 yuan/tonne, the Zhengzhou wheat main 1601 contract rose 0.83% to 2,784 yuan/tonne, and the sugar main 1601 contract rose 0.67% to 5,693 yuan/tonne. In addition, soybean No. 1, rubber, eggs and starch also closed higher.
Most rebounds limited in extent
It cannot be ignored that behind yesterday's unexpected gains, most agricultural products in the domestic futures market have long been in a weak downward channel. Looking at the recent consecutive trends, apart from sugar and soybean meal, which have been relatively strong, the other varieties are weak ones that closed lower on the weekly chart, and varieties such as soybeans, Zhengzhou wheat and rapeseed have even closed lower on the daily chart for consecutive sessions. Industry insiders believe that Wednesday's rise in domestic agricultural futures is closely connected to the USDA report.
A China Securities Journal reporter's tally found that Zhengzhou wheat fell a total of 2% in this round of decline from June 9 to June 30; Zhengzhou cotton fell about 6% from May 5 to June 30; rapeseed futures began falling on May 7 and by June 30 had dropped 25.7%; soybean No. 1 futures fell 6.3% from May 25 to June 30; corn futures fell 8.4% from May 15 to June 30; and rubber futures fell 13.2% over the whole of June.
According to monitoring by the Ministry of Agriculture, on June 29 the “National Agricultural Products Wholesale Price Index” was 201.69, down 1.40 points from last Friday, of which the “vegetable basket” product wholesale price index was 202.81, down 1.45 points from last Friday. The average price of the 28 key monitored vegetable varieties was 3.40 yuan/kg, down 1.2% from last Friday.
Over the past two weeks, as CBOT soybeans staged a rapid rebound (rising nearly 20% from June 16 to June 30), domestic soybean meal spot and futures prices accordingly recovered by 100-200 yuan/tonne from their phased bottom.
It is worth noting that recent speculation over El Nino has filled the market with expectations of a possible bullish run in agricultural products. In early June, the UN Food and Agriculture Organization warned that in response to the strengthening El Nino, crops awaiting harvest should be closely monitored in the second half of this year, and that “yields in many regions will be affected”. During the 1997 El Nino, large numbers of crops withered due to drought.
Ruida Futures said that the rebound in US soybeans has boosted the domestic meal market, but the increased supply pressure from new-season rapeseed meal coming to market means the rebound space is expected to be limited; new-season rapeseed oil not entering state reserves increases short-term supply pressure for rapeseed oil, which is expected to limit its rebound space. In addition, although boosted by the positive USDA report, Zhengzhou cotton rebounded in a choppy manner, but short-term cotton prices remain suppressed by factors such as the introduction of the reserve cotton rotation policy, loan repayment pressure on cotton enterprises and weak downstream demand; amid increasing future market supply and weak downstream conditions, the weak situation will continue.