(Agrimoney) – An easing in jitters over China, fostered by a healthy bounce in Wall Street shares, spread into agricultural commodity markets too, helping even palm oil and soybeans recover from multi-year lows.
The 3.9% jump overnight in New York’s S&P 500 share index, its biggest one-day gain in nearly four years, provoked a big sigh of relief among investors worried about Chinese economic weakness, and helped stocks trade higher in Asian markets too.
Shanghai shares were 1.7% higher in late deals, and Tokyo stocks up 1.1%, with Hong Kong equities gaining 2.2%.
And the improved sentiment spread into commodity markets too, where Brent crude oil, for instance, gained 2.6% to stand at $44.24 a barrel at 07:40 UK time (01:40 Chicago time).
‘Increased the downside risk’
Helpfully for commodities, the dollar failed to extend its recovery from Monday’s seven-month low, as ideas of a rise in US interest rates remained off the cards for now.
Overnight, William Dudley, president of the Federal Reserve’s New York Fed bank, said that arguments for a September rise in US interest rates seemed “less compelling” given enhanced global economic uncertainty.
“International developments have increased the downside risk to US economic growth somewhat,” Mr Dudley said.
“The slowdown in China and the sharp fall in commodity prices are increasing the strains on many emerging market economies and this could lead to a slower global growth rate and less demand for US goods and services.”
The dollar eased 0.1% against a basket of currencies, enhancing a little the competitiveness of dollar-denominated exports, including many commodities.
Palm up
Still, it was the China factor which was by far the biggest prop to ags, fostering even a revival in palm oil, which in Kuala Lumpur rebounded 1.2% from a six-year closing low to stand at 1,890 ringgit a tonne for the benchmark November contract.
China is a huge importer of palm oil, and indeed many other oilseeds and products too, including soybeans and canola.
While Malaysian palm oil exports are seen as rising this month, standing up 9.1% month on month as of August 25 according to cargo surveyor SGS, that is below the rate of increase seen earlier in August.
As for canola, which closed the last session in Winnipeg at its weakest for nearly three months, the spot November lot recovered 0.5% to stand at Can$471.90 a tonne.
China import worries
And in Chicago, soybeans posted a decent recovery, having closed the last session at the lowest on a spot contract basis since March 2009, hurt by China fears which have prompted some relatively downbeat expectations for the country’s imports of the oilseed.
At Chicago broker Futures International, Terry Reilly said that “for 2015-16, we think China will only import 78.8m tonnes of soybeans, 1.5m tonnes greater than the current year,” but a little below a US Department of Agriculture estimate of 79.0m tonnes.
Reportedly, Chinese soybean import bookings for November arrival were, at 2m tonnes, half of what they were at this time last year.
Futures rebound
More on China’s import demand may be gleaned later from US weekly export sales data expected to come in at up to 150,000 tonnes for this season (which ends on Monday) and 600,00-900,000 tonnes for 2015-16.
Last week’s new crop figure was 784,405 tonnes.
Still, with the session’s improved China sentiment, and with a little support too from a producers; strike in Argentina, Chicago’s September soybean contract gained 1.0% to $8.86 ¾ a bushel.
The best-traded November contract bounced 1.1% from its contract closing low of the last session to reach $8.74 ½ a bushel.
Egyptian tender
Grains traded higher too, especially wheat, which found a little extra support from the announcement late on Wednesday by Egypt’s Gasc grain authority of its latest tender, a sign of demand in the market.
Not, it has to be said, that US wheat is seen as having a big chance against competitive Black Sea supplies (with a cloud cast over French wheat by Bangladesh’s rejection last week of a 52,000-tonne cargo, and rumours of a further cargo snub).
US prices are also losing competitiveness against offers from Australia, where improved prospects for the harvest set to start in October have reduced significantly the premium vs Chicago.
“The Australian wheat prices are down sharply on improving conditions in their wheat crop,” US broker CHS Hedging noted.
In fact, Sydney wheat for January was trading Aus$1.00 a tonne lower, at Aus$283.40 a tonne, in late deals, moving contrary to the 0.9% gain to $4.98 ½ a bushel in the December contract in Chicago.
The fate of Chicago wheat later may revolve around US export sales data expected at 225,000-400,000 tonnes for last week, compared with 314,442 tonnes the week before.
‘Seasonal resistance’
Chicago wheat also outperformed Chicago corn, which added 0.6% to $3.75 ½ a bushel for the December contract, withheld a little by the prospect of the US harvest, and the surge in supplies that brings.
“The approaching US harvest offers seasonal resistance despite talk that US farmer may not sell cash grain at current prices,” ADM Investor Services said.
On the demand side, the broker noted that “cheaper prices in South America and Black Sea for corn may be limiting new US export business”.
US corn export sales for last week are expected at 450,000-650,000 tonnes, new crop, in line with the 576,421 tonnes the previous week.
Ethanol vs gasoline
Sentiment over corn demand also took a knock in the last session when official data showed US ethanol production last week down 13,000 barrels a day at a three-month low of 952,000 barrels a day.
“[Producer] margins dropped last week,” ADM Investor Services said.
Futures International’s Terry Reilly said that “the report was viewed as bearish for corn futures.
“Last we heard, US ethanol producer margins are OK, but blender margins are unfavourable.
“Ethanol costs more than gasoline at many locations.”
‘Extremely strong basis’
Among soft commodities, cotton, of which China is the top exporter, also showed positive in early deals, adding 0.3% to 62.72 cents a pound in New York for December delivery.
At the Rose Report, Louis Rose noted some supportive US news on the fibre too.
“In the north Delta, merchants are reportedly offering extremely strong basis in an effort to both put cotton on their books and to cover commitments to domestic mills,” Mr Rose said.
“Concerning production, recent early morning low temperatures below 60 degrees Fahrenheit across the northern cotton belt will slow the development of this season’s crop further.”
Chinese ags mixed
Still, besides all this, it should be noted that asg futures in China itself did not perform so strongly.
In late deals on the Dalian, soybeans for January were 1.1% lower at 4,184 yuan a tonne, and January palm oil down 0.7% at 4,146 yuan a tonne, with corn for January easing 0.5% to 2,009 yuan a tonne.
On the Zhengzhou exchange, January sugar eased 4 yuan a tonne to 5,175 yuan a tonne, although January cotton was up 0.1% at 12,430 yuan a tonne.
