(Agrimoney) – This time, it was the turn of oilseeds to feel selling pressure.
In the last session, prices of soybeans, along with those of the likes ofarabica coffee and raw sugar, were helped by a jump in the Brazilianreal, which gained some 3% to hit an 11-month high against thedollar.
A stronger real boosts the value, in dollar terms, of assets in which Brazil is a major player.
But the real’s rally, if it is continue on Wednesday, had certainly not got into gear in early deals, leaving the currency flat against the dollar, which was in turn flat against a basket of currencies.
Renminbi shifts
Not that currency markets were without interest for agricultural commodity investors.
In China, a big importer of the likes of soybeans as well as cotton and sugar, the country’s central bank, in its daily fix of the renminbiexchange rate against the dollar, set the midpoint, around which the currency may trade 2% either side, at Rmb6.6324 per $1.
That was a strengthening from the Rmb6.6528 set on Tuesday, and indeed followed two days of weakened rates, as Brexit aftershocks hit the world.
‘Silver lining’
Ironically, Tobin Gorey at Commonwealth Bank of Australia saw the renminbi’s previous softness in particular as having supported New York futures prices, which were indeed a top performer in the last session.
Sure, dollar-denominated US cotton “is now more expensive in China.
“The silver lining is though that China’s textile industry will be more competitive as a result and will, perhaps, need more cotton.”
Whatever, Zhengzhou cotton futures on Wednesday continued their recent rally, which was also supported in the last session by a sell-out performance at the latest auction of the fibre from state stocks – a process which has shifted more than 1m tonnes.
Cotton for January jumped a further 3.2% on the Zhenghzou to settle at a contract closing high of 14,420 renminbi per tonne – now up more than 6% in two sessions.
New York cotton for December gained 0.4% to 66.09 cents a pound as of 08:45 UK time (02:45 Chicago time), with investors also foreseeing long-awaited US Department of Agriculture data on US sowings to show that farmers had not planted as much of the fibre as had been thought.
Weather debate
But back to oilseeds, and Chicago soybeans could not match the performance of fellow row crop cotton, easing 0.3% to $11.17 ¼ a bushel for November delivery.
Investors, having apparently got to grips with the fallout from the UK’s vote to leave the European Union, have got themselves in a tizzy about the US weather outlook, and whether it is indeed more threatening.
“The market is again concerned about the potential for US crop problems in July,” said CBA’s Tobin Gorey.
“Weather forecasters are pointing to hotter and drier conditions in the Midwest next week.”
And further ahead, “some of the extended forecasts are looking warm again with precipitation confined to largely the eastern side of the growing area”, said Joe Lardy at CHS Hedging.
But different weather models are offering different short-term outlooks, and of course long-term forecasts need to be treated with some scepticism anyway.
‘Not necessarily bearish’
Also being factored into the mix was the prospect of USDA sowings data, which for soybeans are expected to come out with an increase in plantings, of some 1.1m acres to 83.8m acres.
That said, a separate quarterly report on US inventories, as of the start of the month, is expected to show soybean stocks at levels which some believe could warrant a downgrade by the USDA of its current forecasts for the carryout from the end of 2015-16 (at the close of August).
“Trade is looking for [June 1] stocks to come in above last year, yet sees strong [June-to-August] quarter demand cutting into old crop carryout,” Benson Quinn Commodities said,
“While acres could jump significantly from March intentions, an increase may not necessarily be bearish [assuming] a tighter carry-in” to 2016-17.
Palm down
Still, it was in Kuala Lumpur that the oilseeds sector was suffering particularly, with palm oil for September touching 2,333 ringgit a tonne at one stage, a six-month low, and taking to 11% its decline so far in June.
The drop has been blamed in part on a seasonal uptick in output in the key South East Asian producers, Indonesia and Malaysia.
Indeed, on Monday plantations group Anglo-Eastern Plantations said that it “expects the crude palm oil price to moderate as the crude palm oil production picks up in the third quarter of 2016”.
Demand is also having an impact, with the passing of the pre-Ramadan period of stocking up by buyers.
Malaysian shipments are estimated by cargo surveyors to have dropped by some 10% month on month in the first 25 days of June.
Palm oil futures recovered a little ground to stand at 2,337 ringgit a tonne, down 1.7% on the day.
Area vs yield
Back in Chicago, corn, have underperformed soybeans in the last session, fared a little better this time in showing a small gain to $3.94 ½ a bushel for December delivery.
Traders are balancing the bullish prospect of Thursday’s USDA report showing less corn sowings than though with the bearish factor of the corn crop faring better than had been expected, as condition data on Monday showed.
“While some corn acres are likely to have been switched over to soybeans, analysts think that may be moderated by an upward revision to US corn yields,” Mr Gorey said.
More supportive are ideas that some Chinese buyers may be more open to imports, reportedly finding quality problems in the supplies being sold off from huge state inventories.
‘Slow harvesting progress’
Wheat futures, meanwhile, bounced 0.7% to $4.60 ¼ a bushel for September delivery.
At Futures International, Terry Reilly flagged that “a wet weather pattern for the US Great Plains is expected to slow harvesting progress this week.
Sure, as Benson Quinn Commodities pointed out, “wheat doesn’t have many friends right now, with prices at multi-year lows and in the middle of a big harvest” – but that is being seen as a positive sign by some contrarian investors.
Besides, with funds short in the grain, end-of-month/quarter profit taking would imply support to prices.
On fundamentals, Statistics Canada will later reveal a sowings report which traders expect to show all-wheat seedings at 23.4m acres, down more than 400,000 acres from the original estimate.
Canola area is seen coming in at 20.1m acres, an upgrade of some 800,000 acres.
