agrimoney.com (18/10/2017) - It isn't just in the US that harvest pressure is weighing on the soybean market.

In China, soybean futures for January fell by 1.0% on the Dalian exchange to end at 3,730 yuan a tonne – so recording a contract closing low.

The decline in the contract, now down 3.6% over the past week, comes amid a harvest expected to be the biggest in six years, boosted by measures by Beijing to encourage farmers to grow the oilseed instead of corn, in which they are trying to run down huge inventories.

It also follows a buying spree on international markets, with data on Friday showing China imported 8.11m tonnes of soybeans last month, a rise of nearly 13% year on year, if down 4.0% from August.

The September figure took Chinese soybean imports for 2016-17 as a whole to 93.5m tonnes, a rise of 12% year on year.

'Prices have fallen'

"Chinese soybean prices have fallen since the beginning of September harvest, pressured by higher domestic output and large import volumes," said CHS Hedging.

And there could be longer-term implications of the price weakness, the broker said.

"This could hurt the government's efforts to cut down on corn production, despite the larger subsidies offered in soybeans, as farmers make less money on their soybeans this year."

If such a reversal could prove a bullish factor for US soybean prices next year, if weakened Chinese domestic output encourages imports, for now the opposite case could be argued.

Record stocks

There has certainly been a lull in the reports from the US Department of Agriculture of sales of US soybeans to Chinese buyers.

As an extra sign of ample Chinese soybean supplies, the China National Grain and Oils Information Center reported on Wednesday that domestic soyoil stocks had hit 1.6m tonnes, up some 300,000 tonnes year on year.

The official bureau added that "we expect Chinese soyoil stocks by the end of December to remain at a high level above 1.3m tonnes, much higher than the average level of the last three years of around 1m tonnes".

Dalian soyoil futures for January dropped, although by a relatively modest 0.6% to 6,066 yuan a tonne for January delivery.

In fact, futures in rival vegetable oil palm oil fared a little worse, in dropping 0.8% to 5,560 yuan a tonne.

Margin considerations

The good news for soybean exporters – for which China is by far the biggest market – is that futures in soymeal, while down 0.6% at 2,836 yuan a tonne on the day, remain at relatively elevated levels, up some 4% over the past month.

And it is soymeal, a high protein feed ingredient, which is considered more important for crushing margins than soyoil, the other key soybean processing product.

Soymeal has fewer rivals than soyoil, especially since Beijing slapped huge tariffs on imports of US distillers' grains (DDGs).

That said, China's supplies of domestically-produced DDGs could be poised to soar, if the country's plans to ramp up its ethanol industry come to fruition.

'Wetter evolution'

The Chinese dynamics were hardly good news for Chicago soybeans, which eased 0.2% to $9.82 ¾ a bushel for November delivery as of 09:40 UK time (03:40 Chicago time), feeling pressure too from the US harvest, and the prospect of rains for Brazil, where dry weather has slowed sowings.

"Weather forecasters are now expecting a wetter evolution in Brazil's dry soybean regions next week and beyond," said Tobin Gorey at Commonwealth Bank of Australia.

That said, "forecasters are… unsure about whether that rainfall will be enough to prevent cuts to crop forecasts", Mr Gorey added. 

'Horizontal line'

Rival row crop corn, meanwhile, eased by a more modest 0.1% to $3.49 ½ a bushel in Chicago for December delivery, clinging close to the psychologically important $3.50 a bushel level.

Again US and Brazil weather are a factor for this market – but with prices already not far from contract lows, is there enough potential downside to values to lure in fresh short positions?

The market seems to have reached something of an impasse, with Benson Quinn Commodities saying that the "corn chart is beginning to look like a horizontal line on a page".

The last session produced something of a "doji star" chart pattern, where the day finishes near where it started, having traded higher and lower in the meantime, and is viewed as a sign of market indecision.

'Crop over-rated'

Could this precedes more definite market direction?

It is as least some help to bulls that Ukraine's crop does not, according to Agritel, look like meeting the USDA's forecast of 27m tonnes, on a yield of 6 tonnes per hectare.

According to the Ukraine agriculture ministry, as of October the 17, the country's farmers had "harvested 39% of the corn area, a delay compared to previous years", Agritel said.

The USDA thus appears to have "over-rated" the crop, the analysis group said.

'Taylor Rule'

Less helpful to Chicago bulls has been the recovery in the dollar, which budged a further 0.1% higher against a basket of currencies on ideas of a new incumbent in the Federal Reserve chair who will be keener on raising US interest rates than Janet Yellen.

John Taylor, a Stanford University economist, is one name gaining currency in this regard.

Cotton traders at Ecom noted that "John Taylor is known as the creator of the 'Taylor Rule'.

"It is wise to note that if the "Taylor Rule" had been in place over the last few years then the Fed fund rate would be around 3.5% rather than the current 1.00-1.25%."

A higher dollar cuts the competitiveness of dollar-denominated exports, such as many agricultural commodities.

'Possible short covering'

Against this background, Chicago wheat futures for December eased 0.2% to $4.33 ¾ a bushel, although with ideas of a bit of a stalemate in this market too.

"The US cash markets don't indicate that spreads need to come in or the futures need to rally," said Benson Quinn Commodities.

"The one potentially supportive piece is possible short covering by the funds.

"However, the technicals offer a neutral to negative tone, which limits the prospects of that happening."

'Prima facie, indecisive'

As for the cotton market, CBA's Tobin Gorey termed the performance of the last session "prima facie, indecisive.

"Mr Squiggle might just as easily sketched a bull or bear out of the day's trading picture."

The bank itself expects "prices to fall back to pre-Hurricane levels, in the 66s cents per pound, simply because US harvest pressure is upon us".

Ecom backed this too, saying that "as the US harvest moves into full swing we would expect the futures to start to come off as the surplus of cotton starts to hit the market.

Texas, the top US cotton-growing state, "has been having ideal harvest conditions as the pickers get out on the fields," although "we have seen an increase in storms and showers occurring during the last week".

For now, New York cotton for December added 0.3% to 67.95 cents per pound.