AM Markets: AG Futures Mixed At Start Of High-Profile Week

(Agrimoney.com) –  What will be a momentous week for grain markets started on rather a quiet note.

Momentous, because Thursday and Friday bring the annual US Department of Agriculture outlook conference, at which it unveils its first proper estimates for US crop supply and demand this year.

One of the key factors to look out for will be the shift by farmers from corn to soybeans in spring sowing plans, encouraged by relatively high prices of the oilseed.

(The much-watched ratio between November soybean futures and December corn in Chicago stands at 2.58, well into territory viewed as encouraging plantings of the oilseed, with more like 2.0 or below seen as a definite incentive for corn.)

The start was quiet, however, because of it being a holiday in the US, and Canada, meaning these country’s markets were closed.

In their absence, both bears and bulls claimed some scalps on what markets were open.

Rubber eases

In rubber, bears edged it, with the best-traded May contract closing down 0.9% in Shanghai, and by 0.4% to 295.00 yen a kilogramme during the day session in Tokyo, the weakest close in four weeks – albeit still at relatively high levels.

Prices, which hit a five-year high of 366.70 yen a kilogramme in Tokyto last month, have come under pressure from sales by Thailand, the world’s biggest producer and exporter of rubber, of supplies from state stockpiles.

The sale programme has offset some of the fears of a dent to supplies from floods which have hit southern parts of the country, the main rubber-growing region, killing 99 people since December, besides flooding out plantations.

Still, as some reassurance to bulls, Bridgestone Corp, the world’s biggest tyre maker, forecast on Friday that rubber prices would remain at high levels during the first half of the year, before easing back later in 2017.

“We don’t expect the current prices to continue for a long time, but we don’t see the prices falling to last year’s levels either,” said Akihiro Eto, chief financial officer at the Japan-based group.

Raised import estimate

In most other major contracts on Chinese markets, lower closes were the order of the day too, although not by large margins.

Soybeans for May ended down 0.4% at 4,235 yuan a tonne on the Dalian exchange, where May soymeal shed 0.9% to 2,912 yuan a tonne – following on from the negative trend observed in Chicago on Friday.

That said, Dalian prices remain relatively elevated, with soybeans within sight of contract high of 4,4356 yuan a tonne set last week, and there has been lingering talk of a forecast by grain trading giant Cofco last week of elevated Chinese soybean import.

As Terry Reilly at Chicago broker Futures International noted, “Cofco estimated China’s 2016-17 soybean imports at 89m tonnes, up from 83.2m tonnes in 2015-16, due in part to soymeal demand increasing 7-8%”.

‘Less than ideal’

Sticking with soybeans, there is talk of more rain for Argentina, where flooding has hurt estimates for production of the oilseed in many areas – while boosting yield expectations for areas where crops escaped annihilation.

“Weather conditions in Argentina will be less than ideal this week, with heavy rain potentially causing some localised flooding around Entre Rios,” said Tobin Gorey at Commonwealth Bank of Australia.

“Forecasters say though that no new damage is expected in the key soybean production areas.”

According to Commodity Weather Group, some areas will receive more than 4 inches over the next 10 days, “but only isolated flooding is expected, at most.

“Rains otherwise maintain high corn/soybean yield potential” ahead of drier weather expected in early March.

China to export corn?

Still, corn itself was one of the better performers on the Dalian, adding 1.0% to 1,578 yuan a tonne for the best-traded May contract.

One supportive factor for Chinese values which emerged late on Friday was that Cofco is in talks to sell some corn to Japan.

While only a small amount, reported at at least 15,000 tonnes, such a commercial corn export by China is rare, and would indicate that the country is exploring fresh sources of demand to sap its huge stocks of the grain.

Contrasting export data

On the Kuala Lumpur palm oil market, honours were pretty even in early deals, with the vegetable oil trading higher in the morning, only to ease to fall back into negative territory, before standing at 2,861 ringgit a tonne as of 09:15 UK time (03:15 Chicago time), up 0.1% on the day.

Earlier, palm oil closed lower on the Dalian, by 0.9% to 5,922 yuan a tonne.

But data from on Malaysian exports from cargo surveyors was indecisive, in terms that while ITS pegged a decline of 0.8% so far in February , compared with a 1.4% increase as of five days ago, SGS flagged the reverse trend.

It saw exports rising by 1.7% month on month as of Monday, compared with a drop of 3.6% as of February 15.

Importers active

As for wheat, indications appeared to be of marginal weakness at opening in Paris.

Agritel flagged the negative influence from the weak close to Chicago grain markets on Friday, when “operators took profits after the recent increase, and before the three-day long US weekend”.

However, the Paris-based consultancy also noted the water deficit in France “will have to be closely monitored in coming weeks and higher temperatures”.

There is a stack of demand news in the market, with Ethiopia having bought some 400,000 tonnes of wheat at tender, and Iraq reissuing a tender for at least 50,000 tonnes (and likely to be a multiple of that).

This after Egypt late on Friday purchased 360,000 tonnes.

‘Increases the risk of crop damage’

There is also comment among US brokers over warm weather in the US, which is seen encouraging early emergence of winter wheat seedlings from dormancy, and making them vulnerable to a late frost.

“If soil temperatures rise across the Great Plains, this increases the risk of crop damage if a cold snap occurs in March,” Futures International’s Terry Reilly said.

“Winter wheat tends to end dormancy after soil temperatures increase to 50 degrees Fahrenheit, (an inch deep).

“Texas and Oklahoma are already above that level, and Kansas was near 40 degrees earlier this week.”

Still, as a potential negative for prices, regulatory data showed hedge funds, as of last Tuesday, having halved in a week, to 40,000 contracts, their net short in Chicago wheat futures and options.

That implies less potential support going forward from short-covering