Traders have watched oilseed prices increase, more recently since the beginning of March we have seen Chicago soybeans increase +23%, Rapeseeds +10%, Black Sea Sunseeds +11%, Chicago Soybean meal +33%, Chicago Soybean oil +13%, Black Sea Sunoil +7%. Fundamental justifications for such prices moves have been hard to find, but a few outside factors have been largely at play.
First, outside support for the oilseed sector started with palm oil in early March as El-Nino pushed production fears for palm oil production and the implications of such on the soybean oil and sunoil demand prospects.
Second, there has been a big fear in the marketplace of a weather pattern shift from El-Nino to La-Nina and the impact on yeilds across the world as a result. Big picture, traders look for adverse yield implications and continue to think of below trend line yeilds for 2016/17 crops in North America and S.A. for the upcoming crops. This primarily remains fear driven and the implications on Supply/Demand is the biggest question mark. One main topic of conversation remained the impact of excessive rains in Argentina, which is the world’s largest exporter of soybean meal.
Third, fund (speculative) managers continue to monitor Janet Yellen, the Chair of the U.S. FED and what her actions as well as other global economic leaders may be. This has spurred weakness in the U.S. dollar, thus the reason for speculators to buy commodities. It should be noted that the USD index has been 8% weaker since the start of 2016. As a general feel for the commodity complex, since that time Crude oil has increased +77% and Gold has increased +23%. When you add the weather risk, this creates the perfect market for speculative buyers.
The above mentioned topics come into play when fundamentals and facts point to a bearish market, its just that the impact of weather can potentially have the largest influence on oilseed fundamentals. Currently Global soybean carryout per the most recent USDA numbers have increased +27% for 2014/15 and 2% for 2015/16 while China demand has increased +11% and 6% respectively. Global Sunflower seed carryout per the USDA have decreased -6% for 2014/15 and -36% for 2015/16, sunoil stocks -24% for 2014/15 and -20% for 2015/16.
The point is, the market remains focused on potential weather issues and what this means to the market when looking at Supply and Demand, the soybean market and thus the oilseed sector.
Conclusion: We are entering into the growing season with plenty fears, this mainly weather focused at this point. Typically fears are greeted by some sort of facts, but money flows into the commodity complex has ignored this and are positioning themselves ahead of the growing season, protection of your market risks remain crucial as we enter the growing season.
*Comments in this article are market commentary and are not to be construed as market advice.
Author: Matt Ammermann, Commodity Risk Manager, Vice President Eastern Europe/Black Sea Region, INTL FCStone Financial Inc- FCM Division