(Agrimoney) – Agricultural commodity investors cannot take a breather, even with the Wasde briefing now behind them.
OK, the US Department of Agriculture’s world crop supply and demand report is often the highpoint of the month for many grain investors, and contained a few modest surprises on Friday, notably a bigger-than-forecast cut to US corn yield expectations, but an unexpected increase to the US soybean yield figure.
But this week brings a big event for all markets – a Federal Reserve meeting which may raise US interest rates for the first time in nine years.
“It is a big week this week for commodities – the Fed speaks,” said Mike Zuzolo at Global Commodity Analytics.
“Let’s hope this week keeps the dollar moving lower,” he added, speaking from an ag bull’s perspective.
The dollar has recovered this year on increasing expectations of a US interest rate rise.
But a stronger greenback weighs on values of dollar-denominated exports, including many commodities, by making them more expensive for buyers in other currencies.
Dollar eases
In fact, the chances of a rate rise this week have reduced, undermined by the market turmoil and waning economic growth expectations for China.
While futures markets were, a month ago, putting at 54% the chance of a September rise in US rates, that is now down to 26%, according to Bloomberg calculations.
And the dollar indeed eased a touch against a basket of currencies in early deals, if only by 0.1% as of 09:15 UK time (03:15 Chicago time).
While only a small fall, it did increase the discount of the currency below its 200-day moving average which, besides a three-day stint last month, it has not traded below since July last year.
Mixed shares
Shares proved something of a mixed bag ahead of the Fed decision, with China, where China on Sunday unveiled reforms to its state-owned enterprise sector, also holding some sway.
Weekend data showed both retail sales and industrial production in China in August rising last month at a quicker pace than in July.
The data were perhaps not poor enough, with weak statistics often provoking rises in Shanghai shares on ideas of increased pressure on China’s government to act to support the economy.
Shanghai shares fell 2.7%, weighing on other Asian markets too, with Tokyo stocks closing 1.6% lower and Seoul shares easing 0.3%.
Still, European markets opened higher on Monday, taking more influence by the recent strength in Wall Street shares.
West vs east
Agricultural commodities, however, showed a more consistent price trend – upwards – supported a little by the modest weakness in the dollar, but also by the assessments of the Wasde.
The cut in the US corn yield forecast of 1.3 bushels per acre to 167.5 bushels per acre, and associated larger-than-expected downgrades to figures for production and 2015-16 carryout stocks, continued to provide support to the corn market.
Mike Zuzolo pointed at downgrades by the USDA to its expectations for yields in the western Corn Belt, which has been seen by many investors as making up for the soft results expected from the eastern end.
“No longer can the trade rely upon the idea that the western Corn Belt will help make up for the other areas,” he said.
“I think this opens up the upside for corn, depending on the dollar trend and commodity investor interest related to that trend.”
Chart appeal
And besides the simple matter of improved fundamentals, Richard Feltes at RJ O’Brien flagged that, from a chart perspective, the “corn chart likely attracts new technical longs”.
That said, farmers “will be leaning into price pops to sell excess bushels”.
Corn for December gained 1.0% to $3.90 ¾ a bushel, comfortably above its 100-day moving average, and getting close too to its 50-day line.
Estimate doubts
Soybean futures made headway too, despite the apparently bearish Wasde upgrade to the domestic yield forecast.
In fact, many traders are raising questions over this upgrade, of 0.2 bushels per acre to 47.1 bushels per acre,
“I truly doubt that many analysts are thinking this weekend that the US soybean production number is as good as last year,” Mr Zuzolo said.
“And I really doubt that many analysts think that the yield in Missouri has actually gone up in the last 30 days, and likewise for Illinois.”
‘Mildly supportive’
The crux seems to be over an assumption of record pod weight.
“Trade reluctance to embrace record pod weight may be mildly supportive short term” to prices, Mr Feltes said.
And RJ O’Brien itself pegged the yield at 46.0 bushels per acre, well below the USDA estimate.
Soybean futures for November gained 0.8% to $8.81 a bushel.
‘Potential upside’
Headway in the main row crops fed into the wheat market too, which extended headway despite a lack of supportive data itself in the Wasde.
Indeed, in Australia, crop talk seems only to be getting better and better, with Pentag Nidera saying that recent crop conditions could push the wheat crop above 26m tonnes with a good finish.”
(The Wasde restated a 26.0m-tonne figure)
“Queensland and New South Wales yields have potential upside,” the grain trader said.
‘Low enough’
At Commonwealth Bank of Australia, Tobin Gorey said, after a crop tour in New South Wales last week, that most farmers he spoke to “were very happy with the position of their crops and suggesting they would get good yields with existing moisture.
“Further rainfall late this month and/or early next would see even better yields.”
Still, in Chicago, wheat futures for December gained 0.6% to $4.88 a bushel.
Besides support from corn and soybeans, wheat futures had already priced in significant bearish news ahead of the Wasde, and fallen “low enough to take the report numbers”, Mr Zuzolo said.
Palm springs
The buying spread to Kuala Lumpur too, where palm oilfor November soared 2.7% to 2,191 ringgit a tonne, touching its 200-day moving average on a continuous chart for the first time since late July.
Besides the strong markets for fellow oilseed soy, palm oil is being helped by a weak ringgit and ideas that dryness may subdue production ahead, while Malaysia also on Monday revealed it will for October keep its export tax on the vegetable oil at zero.
Among soft commodities, New York cotton for December gained 0.6% to 63.49 cents a pound, taking a somewhat bullish view of a Wasde report which was, on the face of it, mixed for the fibre.
While the Wasde did raise its estimate for US cotton stocks at the close of 2015-16, the increase was lower than the market had expected.
