(Agrimoney) – Will 2016 prove a more bullish one for agricultural commodity investors?
Not if early dealings are anything to do by, when the main Chicago grain and oilseed contracts remained under the pressure which continued even into the last sessions of 2015.
It was little help that the new year began with some fresh downbeat news from China, where the monthly Caixin/Markit survey showed manufacturing activity contracted in December for a 10th successive month.
The index slipped to 48.2, from 48.6 in November, remaining below the level of 50.0 which indicates a neutral reading, and was weaker than economists expected.
And, as an extra negative for commodities – in a country which is the top importer of many, such as cotton, soybeans and sugar – China’s central bank allowed the renminbi to weaken for a fifth successive session, fixing it at 6.5032 renminbi per $1, a drop of 0.2% and the weakest since May 2011.
Renminbi depreciation only makes imports of dollar-denominated assets less affordable.
China cracks
The China news was particularly badly taken in share markets, with Shanghai stocks, trading in which was halted for 15 minutes after an initial 5% drop, plunging 6.9% as of the close.
The decline was also fuelled by concerns of the lapse of a ban on stock sales by large shareholders, a curb which was imposed at the peak of last year’s market meltdown.
Equities dropped 3.1% in Tokyo and 2.4% in Seoul, while trading 2.7% lower in late deals in Hong Kong, and opening down 1.8% in London.
There was some compensation for many commodity markets in that, with China fears potentially tempting the Federal Reserve to delay further rises in US interest rates, the dollar softened too, by 0.6%, so making dollar-denominated assets more affordable as exports.
Oil gains
Still, even with this, and Middle East tensions too, with Iran and Saudi Arabia breaking off diplomatic ties, Brent crude managed only a 0.1% rise to $37.23 a barrel as of 09:05 UK time (03:05 Chicago time).
And ags were on the whole negative eschewing, so far, any idea of a new month and year bringing in fresh cash, as traders believe is often the case, not panning out yet, at least.
One big negative was a coming of rains in central Brazil, where a dryness has been seen as a threat to in particular soybean production potential.
‘Should improve moisture’
According to MDA, the weekend bought showers generally of 0.25-1.25 inches, but up to 2.75 inches locally, to states including Mato Grosso, the top soybean producer, as well as to the likes of Mato Grosso do Sul, Parana and Sao Paulo.
Prices for March contracts, excl. London. Annual change on a spot contract basis
And this week should bring further rains in central areas of some 0.25-1.5 inches, although with perhaps 4 inches in northern Goias.
“Expected rains this week should improve moisture in north west Mato Grosso do Sul, Goias, Mato Grosso, Bahia and north west Minas Gerais,” MDA said.
The one potential concern is that, “southern Minas Gerais will see limited shower activity”, Minas Gerais being a big grower of first crop corn, as well as coffee.
Farmer selling?
Still, corn itself for March dropped 0.2% to $3.58 a bushel in Chicago, 1 cent above the contract low set last week.
CHS Hedging also noted talk that the new year might actually bring a rise in selling pressure, from farmers
“With declining futures, cash basis has been noted perking up in spots,” the broker said.
“Many expect producer selling once the calendar flips to 2016. Stay tuned.”
‘Dryness will continue…’
There are some supply difficulties which are propping up prices in local corn markets, notably in South Africa, where MDA said that “dryness will continue to stress corn in central and south western crop areas”.
Prices for March contracts. Annual change on a spot contract basis
Indeed, yellow maize
futures for March gained 1.6% to 3,735 rand a tonne in Johannesburg, where the less-traded January lot gained 1.4% to set a fresh record high for a spot contract of 3,952 rand a tonne.
In white maize, a food staple rather than feed, the January contract soared 4.1% to a record top for a spot contract of 4,852 rand a tonne, with the March lot gaining 2.6% to 4,781 rand a tonne.
In India too, a weak monsoon is showing itself in a squeeze on feed supplies, with Futures International highlighting that the country is to allow state-run trading companies to import, duty free, 500,000 tonnes of non-GMO corn.
“It’s uncommon for India to import corn,” Terry Reilly at Futures International said.
“The most India has exported was 4.7m tonnes of corn in 2012-13, and the most they ever imported was only 304,000 tonnes in 1987-88.”
That said, imports even at 500,000 tonnes are hardly likely on their own to be a major market mover, and are seen as likely coming from South America.
Soy slips
And, returning to South America new, the rains in Brazil were not the only pressure on Chicago soybean prices.
Prices for March contracts. Annual change on a spot contract basis
The idea of strong Argentine exports, now that new president Mauricio Macri has cut export duties on the oilseed (and ditched them altogether on corn and wheat) remains a theme.
Chicago soybeans for March stood down 0.6% at $8.59 ½ a bushel, getting little help from soyoil, which dropped 1.5% to 30.28 cents a pound for March delivery.
Besides further deliveries, of 373 contracts, against Chicago’s expiring January lot, potentially indicating that futures are an attractive place to sell, soyoil felt pressure from rival vegetable oil palm oil, which was 2.0% lower at 2,436 ringgit a tonne in Kuala Lumpur.
‘Increased quite dramatically’
Wheat has been feeling pressure from ideas of stepped-up Argentine exports too, concerns which gained momentum last month with the country’s first victory in three years at a tender by Gasc, grain authority for Egypt, the top importing nation.
“Wheat exports from Argentina appear to have increased quite dramatically based on vessel line-up data,” said CHS Hedging.
“Harvest should be wrapping up in most areas,” meaning extra supplies to export.
Meanwhile, on the weather front, there appear no reports yet that colder temperatures in the former Soviet Union have severely damaged crops.
Chicago wheat for March was 0.2% lower at $4.94 ¼ a bushel, remaining close to a contract low.
That said, there may be more to come on this story.
Agritel said that “this morning, temperatures recorded near -20 degrees Celsius in Ukraine as well as in South and Central districts of Russia. In several places, temperatures reached -25 Celsius.
“This quick transition from autumn to winter – which took place around December 28 – is raising questions about the ability of crops to deal with these winter conditions.”
