(Agrimoney) – Agricultural commodity futures attempted to put on a firm show at the end of what has been for most a somewhat mediocre year, with palm oil leading gains.
The broad market mood was helped by further stability in oil markets, with Brent crude for February up 0.8% at $59.90 a barrel as of 10:50 UK time (04:50 Chicago time).
The dollar did its bit too by easing 0.2% against a basket of currencies, if remaining near its highest since March 2006.
A weaker dollar improves the affordability of dollar-denominated exports, such as many agricultural commodities, for buyers in other currencies.
Malaysia floods
That said, it was a ringgit-denominated palm oil futures which took the limelight in early deals.
The ringgit actually lost ground even against a weakening dollar.
But the main factor in the vegetable oil’s favour were the floods which are hitting Malaysia, the second-ranked palm producing country, as well as Thailand, a major rice and rubber grower.
More than 160,000 people in Malaysia have been forced to evacuate their homes in what has been billed as the country’s worst flooding in 20 years.
‘Could reduce output’
For palm oil output, the heavy rains mean disruptions to production, as well as weaker oil content, and potential logistical problems getting output to ports.
Terry Reilly at Futures International noted talk that “the flooding could reduce crude palm oil output by about 18% for December, more than the 10-15% decline estimated earlier” for a time of year which does typically see a seasonal retreat.
OK, on the demand side, latest data from cargo surveyors showed a drop in Malaysian palm shipments in the first 25 days of December, with the decline pegged at 2.3% by Intertek.
But that would be expected, given Christmas/ end-of-year-holiday disruptions.
Palm oil for March stood 1.6% higher at 2,286 ringgit a tonne in Kuala Lumpur, looking for an eighth successive higher close, and indeed gapping higher on its chart.
‘Southern Argentina crop concerns’
That was a boost to Chicago futures in rival vegetable oil soyoil, which for March delivery added 0.8% to 32.85 cents a pound.
That in turn helped soybeans themselves for January gain 0.4% to $10.51 ¾ a bushel.
Latest talk on South American prospects is broadly reassuring from a production perspective, but Mr Reilly did note “southern Argentina crop concerns”.
MDA, the weather service, said that “wetness concerns will continue in northern Santa Fe, Entre Rios and north eastern Buenos Aires this week.
“But much drier weather should arrive in the six-to-10 day time frame.”
‘Impressive early yield reports’
Harvest has actually begun in parts of Mato Grosso, Brazil’s top soybean producing state, where Michael Cordonnier, the crop scout, noted that “early yield reports were very impressive”, coming in at about 59-60 sacks per hectare, equivalent to 3.54-3.60 tonnes per hectare, or 51-52.5 bushels per acre.
Usually, the extra-early maturing soybeans which are being harvested now “have a yield potential about 30% less than full-maturity soybeans due to the shortened life cycle”, Dr Cordonnier said.
“The farmers are attributing the high yields to the near perfect weather and a lack of disease and insect pressure.
“Three applications of insecticides were applied to the first harvested fields which was adequate to control the various pests.”
Russian export tax
Among grains, wheat started strongly, adding 1.1% in Chicago for March delivery to stand at $6.17 ¼ a bushel.
Russia did on December 26 announce a duty on wheat exports, applying from February, when shipments will incur as levy of 15% of the export price, plus E7.5 a tonne, and not less than E35 a tonne overall.
Still, that was not such a surprise, and indeed, the tax was “not as high as the trade had rumoured earlier in the week”, CHS Hedging noted.
In fact, Russian exporters “will attempt to ship as much as possible before February”, which might have been thought likely to put a negative twist on short-term prices.
Data later
Still, Iraq turned to Australia, Canada and the US for a 200,000-tonne hard wheat order announced on Monday, showing some evidence of demand from North America even at elevated levels.
And, from a technical perspective, March wheat improved its credentials by returning back over its 200-day moving average, at a little over $6.13 a bushel, and staying there.
More insight into US exports will be unveiled later, with weekly export sales data (delayed from Thursday) expected at 250,000-450,000 tonnes for wheat, down from 476,274 tonnes the previous time.
Actual export data, as measured by cargo inspections, for last week are due too.
‘Negative input’
For soybeans, the export sales data are expected at 450,000-650,000 tonnes, down from 695,999 tonnes last time.
And for corn, the data are foreseen at 500,000-800,000 tonnes, potentially an improvement on the previous week’s 693,460 tonnes.
Not that investors were anticipating too much, with the March corn contract down 0.2% at $4.14 a bushel.
At Benson Quinn Commodities Brian Henry said that “a look at the technical structure indicates upward momentum is waning.
“I can’t rule out a trip to the gap in the mid-$4.20s a bushel, but find few fundamental reasons to trade to that level.”
Furthermore, the index fund rebalancing next month is looming, a process which “will require maybe 20,000 corn contracts to be sold”, a prospect which “is a negative input into the first of the year”.
