(Agrimoney) – The wheel of fortune of macro-market completed another half turn, bringing losses to many risk assets, and with inevitable pressure on agricultural commodities.
“When the global economy is melting down, we all melt down. When things look a bit rosier, we all tend to rise,” said Tregg Cronin at North Dakota-based grains broker Halo Commodity Company.
Well, Wednesday was a melting down day, although with oil, rather than Shanghai shares (which closed down a modest 1.0%) blamed as the source of unease.
Brent crude stood down 3.2% at $27.84 a barrel, equivalent to $0.17 a litre, as of 09:30 Uk time (03:30 Chicago time), still feeling pressure from the International Energy Agency warning that the market “could drown in oversupply” as increasing Iranian output offsets production cuts elsewhere.
Tokyo shares tumbled by 3.7%, entering a bear market (ie taking its fall from its recent high, in June, above 20%), while Hong Kong stocks stood down 3.8% in late deals, and London shares opened 2.2% lower.
‘Supportive charts’
Against that backdrop, corn bulls, for instance, might have thought themselves lucky that the grain was down a more modest 0.5% in Chicago, for March delivery, at $3.66 a bushel, although dropping just below its 40-day moving average, which it closed above in the last session for the first time in a month.
Earlier the contract nudged above its 50-day moving average, which it has not ended above in nearly three months.
Indeed, Benson Quinn Commodities flagged “supportive” technical factors for corn, although flagging too “a lack of a fundamental catalyst to build momentum off of, with much of the recent price action chalked up to short-covering”.
And oil price weakness is a negative for corn, given the huge proportion of the US crop used to make bioethanol.
‘Scarcity of supplies’
That said, a couple of potential headwinds to world corn output are gaining greater prominence.
The first is the drought in South Africa, which according to the government could mean corn imports of 5m-6m tonnes – for a country which is typically a supplier to its neighbours.
It typically produces 42% of all maize grown by the Southern African Development Community (SADC), and provides some 70% of the region’s import requirement, according to Grain SA.
“Therefore, the current drought situation does not only present white maize shortage to South Africans, but also affects other SADC member states,” Grain Sa said.
“The current white maize price spike is a reflection of scarcity of white maize supplies in the region.”
And white maize futures extended their headway on Wedbesday, with the spot January contract rising 1.9% to a record high of 5,250 rand a tonne, and the better-traded March lot gaining 2.3% to a contract high of 5,296 rand a tonne.
Late harvest
In Chicago, Terry Reilly at Futures International said: “We look for further short-covering this week in the corn market if bullish news continues to trickle out of southern Africa.”
And hedge funds, after all, had their record net short in Chicago corn futures and options as of last week, giving plenty of scope for short-covering.
A second area that investors are focusing on as a potential support is slow sowing of the safrinha corn harvest in Brazil, reflecting a delayed harvest of the soybeans which it follows.
In the key state of Mato Grosso, sowings are 1.7% complete, compared with 3% a year ago, according to the Diario de Cuiaba – a reflection of a late planting season and of recent rains delaying combining.
Ideally, safrinha corn should be seeded within the next month, to reduce the risk of falling victim to seasonally drier weather later in the growing season.
Argentine cargos
Back in Chicago, wheat underperformed as its fellow grain, tumbling by 1.1% to $4.69 ¼ a bushel for March delivery, dropping back below the contract’s 10-day and 20-day moving averages.
Part of the issue for the market are the cheap supplies emanating from Argentina, now that it has ditched export taxes and quotas on the grain, with two cargos destined for the US itself as feed for east coast meat producers.
“The two cargoes of Argentinian feed wheat making their way to the US are weighing on the US and European markets,” broker CHS Hedging said.
‘Bitter cold’
OK, on the production side, much of the northern hemisphere is now getting colder temperatures, a potential threat to winter crops which lack a snow blanket.
“Some areas across the central US Great Plains into the northern half of Illinois, much of Indiana and Ohio saw bitter cold temperatures over the weekend that could have damaged US winter wheat crops in locations with lack of snow coverage,” said Futures International’s Terry Reilly.
However, Benson Quinn Commodities said that while there “may be a little noticeable damage on US winter wheat when spring comes around”, the overall threat of cold to northern hemisphere wheat “isn’t a big deal” thanks to generally “good snow cover”.
In the US, US Department of Agriculture officials in Texas, in their first crop condition estimate of 2016, pegged winter wheat seedlings at 55% in “good” or “excellent” condition, down only 1 point from the previous rating, at the end of November.
‘Will remain awash’
As for soybeans, they fell by 0.5% to $8.78 ¾ a bushel for the March contract, dropping back below its 100-day moving average.
The Brazilian harvest delays are somewhat supportive, in switching importers’ demand to the US, besides provoking ideas of a weaker harvest.
“A deep line up of vessels to load corn in Brazil and slow start to Brazilian soybean harvest is offering US opportunity to book some additional vessels of beans to China,” Benson Quinn Commodities said.
Still, Commonwealth Bank of Australia said it was “sceptical about the sustainability of a rally” in soybean futures on ideas of Brazilian crop downgrades.
“The Brazilian crop, even if it is trimmed, is likely to still be a record,” the bank said.
“And Argentina is ramping up exports of its soybean stockpiles, so we expect the world will remain awash with soybeans for a while yet.”
Exports tail off
The oilseeds complex was also undermined by weak data on Malaysian exports of palm oil, which fell by 8.5% month on month as of January 20, according to Intertek.
That compared with a gain of 4.3% as of January 15.
Rival cargo surveyor SGS said that palm oil exports were currently down by 10.5% month on month, having been up 5.6% at the half-way stage.
The data put a bit of a dampener on ideas from a Malaysia palm oil conference earlier this week at which Thomas Mielke, the head of influential consultancy Oil World, forecast palm oil prices appreciating by some $50-100 a tonne over the first half of the year, equivalent to about 220-440 ringgit a tonne at current exchange rates.
The forecast was based on ideas of a small drop in Malaysian production this year, to 19.8m tonnes from 19.96m tonnes in 2015, besides increasing use of the vegetable oil in Indonesia for making biodiesel.
Prices fall
Still, the drop-off in Malaysian exports might appear to have the hallmarks of a completion of stockpiling by China ahead of its lunar new year holidays early next month. Still, data from the cargo surveyors indicated that European Union imports have actually performed weakly so far in January.
In China, palm oil futures on the Dalian exchange eased 0.3% to 4,682 renminbi per tonne.
Kuala Lumpur palm oil for April stood down 1.3% at 2,445 ringgit a tonne, weighing on values of rival vegetable oil soyoil, which fell by 1.0% to 29.72 cents a pound in Chicago for March delivery.
