Chinese Demand Fears Undermine Soybeans, Grains

4-23-14 – Grain and soybean futures are lower in overnight trading as worries about Chinese demand for soybeans and meal have some traders unwinding soybean/corn spreads.\r\n\r\n   The HSBC April flash Purchasing Managers’ Index, which was released overnight, read 48.3, up from 48.0 in March but below the neutral 50.0 reading.  It showed economic contraction for the fourth straight month and reignited fears of consumer demand for a variety of products, meat being one of them. \r\n\r\n   If Chinese consumers cut back on meat purchases, which primarily means pork and chicken, then soymeal demand will be cut as producers trim herds and flocks in response to declining returns.\r\n\r\n   Markit’s HSBC Chief Economist Qu Hongbin said domestic demand showed mild improvement, and deflationary pressures eased, but employment and export orders contracted.  He expected more economic stimulus from the government in coming months.\r\n\r\n   And there are rumors China will begin auctioning soybeans out of reserve as soon as next month, adding supplies to an already over-supplied market.\r\n\r\n   Soybeans also are taking a beating from continued reports of South American soybeans that once were destined for China being sold and delivered to US buyers.  Combined with a slowdown in US soybean exports, the imports will add to ending stocks.\r\n\r\n   And new estimates of Argentina’s soybean crop are creeping higher, with the Rosario Grain Exchange upping its forecast to 54.9 million tonnes from 54.7 million.  The USDA is estimating 54.0 million.\r\n\r\n \r\n\r\nRAIN COULD SLOW CORN PLANTING\r\n\r\n \r\n\r\n   Corn futures were up Tuesday and are mixed in overnight trading amid renewed worries about further planting delays.\r\n\r\n   The latest weather forecasts point to more showers sweeping through the Midwest next week.  While “rain makes grain” is a truism, and the western Midwest could use the moisture, the grain has to be planted for that to work.  Speculative traders in particular get worried with each delay.\r\n\r\n   However, market reactions to planting delays are muted as analysts and commentators write or say that it’s too early to get too excited.  US farmers can burn up a lot of diesel fuel in a short period of time dragging planters across the fields.  Besides, newer varieties seem less prone to yield losses from a late start.\r\n\r\n   Many market pundits add that Monday’s reported planting progress by the National Agricultural Statistics Service was lower than the actual progress as USDA surveys missed many farmers who were too busy to respond.\r\n\r\n \r\n\r\nCOLD STORAGE REPORT SURPRISES\r\n\r\n \r\n\r\n   The USDA released its April Cold Storage report Tuesday, and the results showed more demand for meat than was expected.  The pork drawdown was 79 million pounds during March, the largest March decline in history.\r\n\r\n   And beef supplies, at 404.7 million pounds were 21% lower than a year earlier and follows a 16% year-over-year decline in February.  On a monthly basis, beef stocks were down 5 million pounds.\r\n\r\n   Yet despite the bullish implications of the Cold Storage report and higher boxed beef prices this week, live cattle futures are down in overnight trading.  Continued selling interest is carrying over from Tuesday after prices neared chart resistance points, making traders nervous about the ability of the market to move higher.\r\n\r\n   Cash markets remain quiet with no packer bids and asking prices around $148 per cwt on a live basis and $238 dressed. \r\n\r\n   The USDA reported its choice beef cutout value Tuesday at $231.21 per cwt, up $2.15, while the select cutout rose $1.55 to $219.62.  The choice/select spread widened to $11.58, and there were 96 fabricated loads sold into the spot market.\r\n\r\n   The CME Feeder Cattle Index for the seven days ended Monday was $177.13, unchanged, while the May futures contract settled Tuesday at $178.35, up $0.25.  April live cattle settled Tuesday at $143.70, up $0.25.\r\n\r\n \r\n\r\nIN OUR OPINION\r\n\r\n \r\n\r\n–Ukraine influence likely to heat up again as violence builds amid evidence of torture.\r\n\r\n–Macro markets will take on greater importance into the weekend with flash PMI numbers coming out amid US New Homes sales, earnings reports and new unemployment claims.\r\n\r\n–China’s banks report a rising level of bad loans, so to avoid a meltdown and stimulate the economy, the government likely will unveil more help.