China Cancellation Rumors Weigh On Soybeans

Rumors that China is cancelling orders for US soybeans and turning to cheaper Brazilian product abound and are taking futures prices lower.  But wheat and corn are bouncing amid winter-kill fears and thoughts of continuing corn exports in the near term.\r\n   China normally switches to Brazilian soybeans this time of year as the harvest there begins coming to market.  So far this crop year, US export sales and shipments have been good, threatening to take ending stocks to or below what is needed for minimum supplies.  And Brazil is harvesting what appears to be a record crop, taking export offerings there well below those at the US Gulf.\r\n   So what’s keeping China from making a wholesale switch?  Logistics.\r\n   Brazil’s port facilities are unable to meet harvest-time demand for soybeans or corn, and promised improvements after last year’s well-publicized vessel backups apparently are less than hoped-for.  This year’s backlog already exceeds last year’s.\r\n   And even if the port facilities themselves were expanded, Brazil’s lack of an inland waterway into the heart of its producing regions means grain and soybeans must take a less-efficient overland route to port.  Trucks often back up for miles waiting to unload.\r\n   Meanwhile, extreme cold and ice in the US is hampering country movement of corn and soybeans.  Icy roads, frozen equipment, frozen or ice-clogged rivers and locks and slower rail transit times are impeding the free and easy movement of grain and soybeans.  As a result, basis levels throughout the system are rising.\r\n   The National Weather Service indicates a series of cold fronts with snow and freezing rain could prevail in the country for the next few weeks.  The rise and fall of temperatures could be hard on cattle and increase illness and death loss.\r\n   The latest forecast calls for colder temperatures and light snow into Saturday in southwestern Kansas after seeing temperatures Wednesday around 55 degrees.\r\n   Wheat markets got a psychological boost Wednesday when Egypt imposed more stringent moisture requirements on any further wheat purchases, which EU suppliers may have a harder time filling.  However, Black Sea exporters appear to have enough to fill most of Egypt’s expected buying interest into its own harvest.\r\n   Wednesday, the Federal Open Market Committee said it would reduce its bond purchases by another $10 billion a month, trimming the monthly economic stimulus to $65 billion.  Investors generally expected this, but it still increased the value of safe-haven currencies like the US Dollar and the Yen against higher-yielding currencies like the Australian and New Zealand dollars, Reuters reported.  Continued growth in the US Dollar’s value could negatively affect exports.\r\n   Further support for the US Dollar (and pressure for stocks) came as China’s January manufacturing Purchasing Managers’ Index fell to a 6-month low of 49.5 from 50.5 in December.  A reading below 50 shows contraction.\r\n   Light cash cattle sales were rumored Wednesday at $146 to $147 per cwt, steady with midweek sales last week.  The news was supporting cattle futures, analysts said.\r\n   Beef movement and prices are down after setting record highs, however, pinching packer margins, which could result in light cash purchases this week.\r\n   USDA’s choice beef cutout Wednesday was reported at $231.81 per cwt, down $3.99 on the day.  Select was off $3.24 at $230.43.  The choice/select spread narrowed to $1.38, and there were 100 loads of fabricated product sold into the spot market.\r\n   The CME Feeder Cattle Index for the seven days ended Tuesday was $171.61, up $0.26, while Jan futures settled Wednesday at $171.80 per cwt, up $0.37.\r\n