Ags swing low into the year of the monkey

February 8th, 2016

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Category: Grains, Oilseeds

Wheat field and blue sky 450x299(Agrimoney) – Happy new year.

Not that the new lunar year, of the monkey, started quite so well for ag commodity bulls.

Trading in one ag market that has been faring well of late, Kuala Lumpur palm oil, was closed for celebrations, which will close Chinese markets too this week.

Festivities, for different reasons, were under way in Brazil too. There, carnival holidays last until Wednesday.

‘Cheaper than US’

And there is a feeling that things will be different even in the US when both China and Brazil return from their holidays, with a negative in particular for soybean prices.

The thinking is that the holiday period marks a bit of a watershed, and that Chinese buyers, the world’s top importers, will on their return with a greater priority for aiming their business at South America.

Certainly, “Brazil and Argentine new crop offers are cheaper than US,” broker Benson Quinn Commodities said, noting that last week’s fall in the dollar (which was reversed a little on Friday) “did not come with any daily reporting of export sales” by US officials.

A weaker greenback, in making dollar-denominated exports more affordable, might have been expected to lure out extra buying of US crop exports.

‘Drought damage reversed’

And Brazilian supplies are coming online with increased alacrity too.

The harvest in Mato Grosso, Brazil’s top soybean producing state, has reached 14.4% complete, up 6.2 points week on week, albeit still a little behind the pace last year, when 16.8% of the crop was in the barn, according to data from agricultural institute Imea.

And this progress comes despite rains which have underpinned production prospects, estimated by Imea currently at 27.82m tonnes.

The proportion of the crop rated “good” or “excellent” as of today was, at 33.7%, up 4.9 points from a January 25 reading.

“There was increased growth of crops and excellent in good conditions, ie with productivity expected over 55 bags per hectare,” said Imea, adding that the main reason for the improvement was a “good volume of rain in January”, of which the impact was now feeding through.

Some of the setbacks to dryness early in the growing season (ie late 2015) “could be quite reversed due to the good conditions recorded at the beginning of the year” Imea said, highlighting the potential for a “positive impact” on yields.

‘Ease dryness concerns’

Rains will continue this week in western areas of Mato Grosso, besides northern Mato Grosso do Sul, south west Goias and south west Minas Gerais, Commodity Weather Group said.

While the impact will be, besides to “aid” coffee and sugar crops, to interrupt soybean harvesting and seeding of the follow-on safrinha corn crop, delays will be “intermittent”.

Meanwhile, in Argentina, rains are easing worries over drought damage to crops too.

This week, “showers in southern Santa Fe, southern Entre Rios, northern Buenos Aires will ease dryness concerns,” after some wetness over the weekend too, weather service MDA said.

Commodity Weather Group said that the rains “will stabilise yield potential”, for corn as well as soybeans, other than in a few areas in Buenos Aires province.

‘Overstating the crush’

Of course, these are not the only issues facing soybean investors, with another big test this week what comes out of the US Department of Agriculture’s Wasde crop supply and demand report, on Tuesday.

Even so, more ideas are that, if there is any change to the estimate for US soybean stocks at the close of 2015-16, it will be a small upgrade, of 5m bushels to 440m bushels, ie leaning on the bearish side for prices.

“Trade thinks the USDA is overstating the soybean crush, at a record 1.89bn bushels and with no record crush numbers reported so far for the marketing year, the market is probably not off base,” Benson Quinn Commodities said.

“But will USDA lower the crush estimate four months into the marketing year?”

‘Modicum of support’

Oil prices were weaker in early deals too, down 0.7% at $33.81 a barrel for Brent crude as of 09:40 UK time (03:40 Chicago time), a pressure for ags related to biofuels, as soybeans are via soyoil, of which a big proportion is made into biodiesel.

Still, it was a little help too that data on investors positions, released late on Friday, showed that hedge funds had cut their net short in Chicago soybean futures and options by some 4,600 lots, fewer than investors had expected.

The data showed that “funds covered a lot less of its short position than expected”, Benson Quinn Commodities said, adding that this “may offer a modicum of support” to prices short-term.

Longer term, “the only thing bullish is that seasonally the market tends to turn in February with funds reducing risk and taking off short positions ahead of US planting season”.

Soybean futures for March were 0.1% lower at $8.66 ¼ a bushel.

‘Favourable conditions’

Nor could corn futures manage headway, and recover any of last week’s losses, which came in the face of dollar weakness and, on Friday, an announcement by Argentina of an increase to 12%, from 10%, in the ethanol blend.

With ethanol made in Argentina, like the US, largely from corn, the move “should benefit corn producers over the short term, as well as sugar producers” said Joe Davis at Chicago broker Futures International.

“If ethanol production expansion materialises, look for growth in corn-for-ethanol based plants.

Still, “South American crop weather is weighing more heavily on the market as forecasters expect conditions to remain favourable again this week,” Tobin Gorey at Commonwealth Bank of Australia said.

And, as for the Wasde, that is expected to make a, small, upgrade to the estimate for US corn stocks at the close of 2015-16, by 7m bushels to 1.809bn bushels.

Corn for March eased by 0.2% to $3.65 a bushel.

Ergot saga continues

For wheat, South American weather is not so important, with the last crop now just harvested.

But where weather conditions are more sensitive is in the northern hemisphere, they have proved mainly benign for winter crop.

And demand has taken centre stage too, with Egypt’s on-off zero tolerance clampdown on imports of wheat containing ergot, a commonly-found fungus that can cause hallucinations if taken in big enough quantities.

Egypt, the top wheat importer, was forced to cancel two tenders last week, the first after receiving no offers, and second after receiving four offers, which the supply authority Gasc said over the weekend were $10-a-tonne above market rates.

‘Already constipated’

These latest comments came as Egypt attempted to draw a line under the ergot furore, claiming it had never in fact stated zero tolerance on ergot, and that a French shipment rejected for containing the fungus held more than the rate of 0.05% it had historically stuck to.

Not that all observers necessarily took this at face value, leaving doubts over merchants’ willingness to tender to Egypt.

“The Franco-Egyptian wheat saga seems to have the market somewhat concerned,” said CBA;s Tobin Gorey.

“The wheat market, already constipated, doesn’t need another delay in moving wheat on to end users.”

Chicago wheat futures for March were 0.3% lower at $4.65 ½ a bushel.

Cotton sowings

One brighter start that traders might have hoped for was in cotton, after the National Cotton Council over the weekend, after a farmer survey, estimated US sowings of the fibre this year at 9.1m acres.

While representing a rise of 6.2% year on year, that is below estimates from other commentators.

“The survey results were lower than market expectations,” said Louis Rose at the Rose Report, noting a survey from Delta Farm Press showing area of nearly 9.2m acres, and a Bloomberg figure of 9.45m acres.

‘Hard to move’

However, New York cotton futures eased too, amid some expectations that the USDA will in Tuesday’s Wasde lift the domestic stocks estimate, thanks to disappointing exports.

“US cotton has already proved hard to move this season and, despite a big improvement in sales last week, exports are still behind the pace required to meet current forecasts,” said CBA’s Tobin Gorey.

“Higher US end stocks in 2016 might just be the issue that sees cotton prices seriously test the low side of the 60-65 cents a pound range.”

Cotton futures for March were 0.01 cents lower at 59.96 cents a pound, having closed the last session below 60 cents a pound for the first time in four months.

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