MARKET DEVELOPMENT
AM Markets: Soy Rises, as Traders Read Between Trump's Lines
AM Markets: Soy Rises, as Traders Read Between Trump's Lines
02/03/2017 (AgriMoney.com) - February 28, 1983 brought one of the biggest television audiences in history, witnessing the final episode of M*A*S*H which was watched by well over 100m people.
Wind forward 34 years, and the speech by Donald Trump, the US president, to Congress last night may not have attracted quite the same figures overall, but was a must-view for grain traders, corn and soybean farmers, crushers, ethanol producers etc.
The allure of the speech was that it might contain a clue as to Mr Trump's biofuel policy, after a day of wild trading on corn and soybean markets.
Futures were sent soaring by rumours that the new president had signed an executive order which would result in raised biofuel demand, only to pare gains on White House denials.
"Do we know anything for certain? No! Did the market trade headlines and rumours today? Heck yes!" said Joe Lardy at CHS Hedging, as the sector awaited Mr Trump to take the podium.
Not so simple?
Unfortunately for ag, the speech offered no clarification on any reforms to US biofuels policy.
There was no mention of energy, corn, biofuels or blending, let alone of whether the US actually is to raise to 15%, from 10%, the mandated proportion of ethanol which must be mixed into gasoline – as one version of market rumour had it on Tuesday.
In fact, a boost to the ethanol blend might not be quite so easy.
"It is my understanding that any change to the Renewable Fuel Standard would require approval from the EPA which normally involves a public comment period or potentially and act of Congress," CHS Hedging's Joe Lardy said.
To judge by the deadline misses on previous EPA deals on ethanol, with biofuels a complex and emotive topic, swift resolution would indeed appear difficult.
'Will not happen overnight'
And this besides any logistical and technological issues.
At broker Futures International, Terry Reilly detected a market "consensus that the US pumps will never reach a 15% blending level, at least before the end of 2017," even setting aside the Congressional approval aspect.
"Bottom line, E15 will not happen overnight.
"One trader thinks up to 10.5% could be blended, but not much beyond that," implying a relatively muted boost to corn demand.
Chicago corn futures for May traded a modest 0.1% higher to $3.74 a bushel as of 09:20 UK time (03:20 Chicago time).
Soyoil impact
Still, on one other aspect of the biofuel rumours, observers did attempt to read between the lines of Mr Trump's speech last night, such as when he said: "My job is not to represent the world. My job is to represent the United States of America".
One aspect of the market talk is that the new administration is poised to renew the tax credit on biodiesel, which is made from vegetable oils, and in the US notably soyoil.
However, the credit would be switched to the producer from the blender, so meaning it will not apply to the substantial imports, the vast majority from Argentina, that the US has been taking in, and so hand an advantage to the domestic industry.
(The rumours came, by the way, as Argentina was on holiday.)
'Fits perfectly'
Mr Lardy said: "The rumoured changes to the biodiesel program would have a significant impact on countries that export biodiesel to the US," and which also include Canada and Germany.
At broker RJ O'Brien, Richard Feltes said that the "renewal of a biodiesel tax credit that prohibits use by foreign producers fits perfectly with Trump's 'American First' trade policy".
Scott Irwin at the University of Illinois said that while Mr Trump "won't touch the Renewable Fuel Standard", he may "prohibit foreign biofuel additives from accessing US tax credit".
Certainly, Chicago soyoil futures were a touch stronger than those in corn, adding 0.3% to 34.04 cents a pound for May, with rival palm oil faring substantially better in Kuala Lumpur, adding 1.3% to 2,807 ringgit a tonne.
Soy, wheat gain
Back in Chicago, soybeans themselves added 0.4% to $10.39 ¾ a bushel, fight back in the "battle for acres" in US spring sowings programmes, in which the oilseed lost substantial ground in the last session.
The much watched November soybean futures: December corn ratio, an indicator of the relative financial appeal of both crops to growers, revived to 2.53, after falling below 2.52 as of last night's close (albeit still well into territory seen as encouraging soybean plantings).
And wheat for May gained 0.4% too, to $4.45 ½ a bushel, rebuilding a little of its premium against corn which had retreated back to $0.70 a bushel as of last night from a recent high of $0.90 a bushel set two weeks ago.
The two grains are linked through their use as alternatives in feed grain, meaning their prices tend to show a decent correlation – especially when the US has large wheat inventories to shot of, as now.
Big deal
Sentiment in both Chicago and Paris has also received support from the details of the latest tender by Egypt's Gasc authority.
Gasc overnight, amid a purchase of 535,000 tonnes of wheat, not only bought its first French wheat of the season (120,000 tonnes).
The bids also showed that US wheat was competitive too – excluding shipping - against a Russian origin struggling with a stronger rouble, which cuts the competitiveness of the country's exports.
US wheat is only a "freight spread away from being competitive" on Egyptian business, Benson Quinn Commodities said.
At Commonwealth Bank of Australia, Madeleine Donlan flagged a wider market support from Gasc's purchase.
"Egypt, as the world's largest wheat importer, buying large amounts of wheat despite a sharply weaker currency is a good sign for the broader market," Ms Donlan said.
'Even-running, contamination-free...'
In New York, cotton showed marginal gains, adding 0.2% to 76.49 cents a pound, needing to fight too for a showing in US spring sowings programmes.
Ecom traders, in Australia, also noted that in the physical market "currently, US cotton remains as the most commonly desired growth by spinners everywhere.
"Mills have become accustomed to the even-running, contamination-free, high-grade cotton, and would prefer to continue running these bales for as long as possible."
Wind forward 34 years, and the speech by Donald Trump, the US president, to Congress last night may not have attracted quite the same figures overall, but was a must-view for grain traders, corn and soybean farmers, crushers, ethanol producers etc.
The allure of the speech was that it might contain a clue as to Mr Trump's biofuel policy, after a day of wild trading on corn and soybean markets.
Futures were sent soaring by rumours that the new president had signed an executive order which would result in raised biofuel demand, only to pare gains on White House denials.
"Do we know anything for certain? No! Did the market trade headlines and rumours today? Heck yes!" said Joe Lardy at CHS Hedging, as the sector awaited Mr Trump to take the podium.
Not so simple?
Unfortunately for ag, the speech offered no clarification on any reforms to US biofuels policy.
There was no mention of energy, corn, biofuels or blending, let alone of whether the US actually is to raise to 15%, from 10%, the mandated proportion of ethanol which must be mixed into gasoline – as one version of market rumour had it on Tuesday.
In fact, a boost to the ethanol blend might not be quite so easy.
"It is my understanding that any change to the Renewable Fuel Standard would require approval from the EPA which normally involves a public comment period or potentially and act of Congress," CHS Hedging's Joe Lardy said.
To judge by the deadline misses on previous EPA deals on ethanol, with biofuels a complex and emotive topic, swift resolution would indeed appear difficult.
'Will not happen overnight'
And this besides any logistical and technological issues.
At broker Futures International, Terry Reilly detected a market "consensus that the US pumps will never reach a 15% blending level, at least before the end of 2017," even setting aside the Congressional approval aspect.
"Bottom line, E15 will not happen overnight.
"One trader thinks up to 10.5% could be blended, but not much beyond that," implying a relatively muted boost to corn demand.
Chicago corn futures for May traded a modest 0.1% higher to $3.74 a bushel as of 09:20 UK time (03:20 Chicago time).
Soyoil impact
Still, on one other aspect of the biofuel rumours, observers did attempt to read between the lines of Mr Trump's speech last night, such as when he said: "My job is not to represent the world. My job is to represent the United States of America".
One aspect of the market talk is that the new administration is poised to renew the tax credit on biodiesel, which is made from vegetable oils, and in the US notably soyoil.
However, the credit would be switched to the producer from the blender, so meaning it will not apply to the substantial imports, the vast majority from Argentina, that the US has been taking in, and so hand an advantage to the domestic industry.
(The rumours came, by the way, as Argentina was on holiday.)
'Fits perfectly'
Mr Lardy said: "The rumoured changes to the biodiesel program would have a significant impact on countries that export biodiesel to the US," and which also include Canada and Germany.
At broker RJ O'Brien, Richard Feltes said that the "renewal of a biodiesel tax credit that prohibits use by foreign producers fits perfectly with Trump's 'American First' trade policy".
Scott Irwin at the University of Illinois said that while Mr Trump "won't touch the Renewable Fuel Standard", he may "prohibit foreign biofuel additives from accessing US tax credit".
Certainly, Chicago soyoil futures were a touch stronger than those in corn, adding 0.3% to 34.04 cents a pound for May, with rival palm oil faring substantially better in Kuala Lumpur, adding 1.3% to 2,807 ringgit a tonne.
Soy, wheat gain
Back in Chicago, soybeans themselves added 0.4% to $10.39 ¾ a bushel, fight back in the "battle for acres" in US spring sowings programmes, in which the oilseed lost substantial ground in the last session.
The much watched November soybean futures: December corn ratio, an indicator of the relative financial appeal of both crops to growers, revived to 2.53, after falling below 2.52 as of last night's close (albeit still well into territory seen as encouraging soybean plantings).
And wheat for May gained 0.4% too, to $4.45 ½ a bushel, rebuilding a little of its premium against corn which had retreated back to $0.70 a bushel as of last night from a recent high of $0.90 a bushel set two weeks ago.
The two grains are linked through their use as alternatives in feed grain, meaning their prices tend to show a decent correlation – especially when the US has large wheat inventories to shot of, as now.
Big deal
Sentiment in both Chicago and Paris has also received support from the details of the latest tender by Egypt's Gasc authority.
Gasc overnight, amid a purchase of 535,000 tonnes of wheat, not only bought its first French wheat of the season (120,000 tonnes).
The bids also showed that US wheat was competitive too – excluding shipping - against a Russian origin struggling with a stronger rouble, which cuts the competitiveness of the country's exports.
US wheat is only a "freight spread away from being competitive" on Egyptian business, Benson Quinn Commodities said.
At Commonwealth Bank of Australia, Madeleine Donlan flagged a wider market support from Gasc's purchase.
"Egypt, as the world's largest wheat importer, buying large amounts of wheat despite a sharply weaker currency is a good sign for the broader market," Ms Donlan said.
'Even-running, contamination-free...'
In New York, cotton showed marginal gains, adding 0.2% to 76.49 cents a pound, needing to fight too for a showing in US spring sowings programmes.
Ecom traders, in Australia, also noted that in the physical market "currently, US cotton remains as the most commonly desired growth by spinners everywhere.
"Mills have become accustomed to the even-running, contamination-free, high-grade cotton, and would prefer to continue running these bales for as long as possible."