AM Markets: Palm Oil, Cotton Dodge Grain Market Malaise

(Agrimoney) – Amid all the hubbub of the US corn and soybean harvest that is dominating grain and oilseed traders’ talk, India is cropping up as a bit of a market theme too.

A 1.6% rise to 2,720 ringgit a tonne in Kuala Lumpur palm oil futures for December in early deals on Monday – with the contract earlier hitting a five-month high for a benchmark lot of 2,737 ringgit a tonne – was attributed to a cut by India to its duty on edible oil imports.

The country, the top palm oil importer, has cut to 7.5%, from 12%, the import duty on crude palm oil, with refined vegetable oil purchases now attracting a 15% levy, down from the previous 20% charge – moves aimed at helping curb food inflation.

“The timing was good for India to make some changes to their vegetable oil import tariffs,” Terry Reilly at Chicago broker Futures International, noting that Indonesia, the biggest palm oil exporter, is reintroducing an export tax on crude palm oil next month, of $3 per tonne.

Hopes for large Indian palm oil purchases diluted market disappointment of data showing an acceleration in the rate of decline of Malaysian exports of the vegetable oil as September progresses.

Cargo surveyor Intertek said that shipments fell by 15.6%, month on month, in the first 25 days of September.

Big wheat imports?

India has also made news in the wheat market, with the country on Friday lowering its import duty on the grain too, to 10% from 25%, and underlining its return as an importer, after a couple of years of decent exports earlier this decade.

The duty reduction “hints at that country needing to buy more than the expected 2m tonnes”, said Brian Henry at Benson Quinn Commodities, noting that India’s current purchases for 2016-17 “are approaching, if not exceeding 1m tonnes”.

India has made purchases from the likes of France (honest) and Ukraine.

Indeed, the broker flagged that “some private analysts are estimating India could import as much as 5.0m tonnes”.

‘Demand hopes have perked up’

India’s move has countered some of the ever-present talk of large wheat harvests, and competitively-priced exports, in the Black Sea.

“Demand hopes have perked up out of India lowering import tariffs, while supply hiccup potentials out of the dry weather in Argentina and Ukraine,” said ag advisory group Water Street Solutions, if highlighting that India was likely to buy its wheat from the Black Sea, and Australia.

Still, the news helped Chicago wheat see a relatively modest 0.1% drop to $4.04 ½ a bushel in futures for December delivery, outperforming rival grain corn, if continuing a performance which has not excited Joe Lardy at broker CHS Hedging.

Mr Lardy said: “How boring has the wheat market been lately, you ask? December wheat futures have been trading in $4.00 to $4.10 range for the last three weeks.”

‘Uncovered a bid’

It is also noteworthy that Chicago, soft red winter, wheat this time outperformed its higher-protein peers too, with Kansas City hard red winter wheat futures for December easing 0.2% to $4.20 ½ a bushel as of 10:30 UK time (09:30 Chicago time).

This was a reflection of data on hedge fund positioning showing that speculators have cut notably their net short in Kansas City wheat – to a three-month low – so weakening the potential for price support from further short-covering.

(In Chicago wheat, the managed money net short stood at 127,625 as of Tuesday, close to a record high.)

Minneapolis hard red spring wheat futures for December, meanwhile, dropped by 0.4% to $5.02 a bushel, after a resilience last week which drove the premium to Chicago above $1 a bushel on Friday.

“The wheat market has uncovered a bid in the Minneapolis market as rains fall on last of Canadian wheat harvest,” said Minneapolis-based Benson Quinn Commodities, with harvest moisture raising the risk of yet more of the world harvest suffering quality degradation.

Midwest weather

Still, the weather grain traders are most concerned about currently is that in the Midwest, and whether it is proving wet enough to pose a threat to harvest progress, and even quality, of corn and soybeancrops.

The picture is mixed. There were some strong rains over the weekend, of up to 5 inches in Kansas and Oklahoma, according to Commodity Weather Group.

And there is some more rain due in the eastern Midwest on Tuesday-to-Thursday this week.

But the “rest of the Midwest dries for at least a week before the return of rain next week”, the forecaster said.

While there is still enough moisture to “keep the corn and soybean slower than normal”, the short-term break in the rains “limits damage concerns”.

‘Pressure on pricing’

Tobin Gorey at Commonwealth Bank of Australia summed up sentiment so: “The market remains concerned about the heavy flooding in Iowa, Minnesota and Wisconsin.

“Fieldwork has advanced quickly in the remainder of the Midwest though, so that has maintained the pressure on pricing.”

Benson Quinn Commodities said that “corn should see sell pressure, with harvest heating up in the central Midwest”, if noting that “early harvest yields for corn have been mixed with some areas seeing better than last year’s records while others appear disappointing to last year’s results”.

Corn for December fell 0.5% to 3.34 ¾ a bushel.

‘Tale of two cities’

Soybeans fared better, in easing 0.1% to $9.54 ½ a bushel for November delivery, offered some support by the vegetable oil market, with soyoil for December helped by palm oil 0.2% higher to 33.63 cents a pound.

Soybeans are also finding support from demand ideas.

Water Street Solutions said that “a tale of two cities is appropriate for the soybean market.

“Right now, the continued narrative is ‘wow, these are really good beans’ – this is the supply side.

“But over on the demand side is the likelihood that the September [US] export inspections to be double previous pace records for that month.”

‘Reports of hailstorms’

In New York, cotton sided with palm oil in showing decent gains, adding 1.1% to 70.81 cents a pound for December delivery.

This following a jump in futures on the Zhengzhou exchange in China, a key cotton economy, where the January contract settled up 2.8% at 15,270 yuan a tonne.

CBA’S Tobin Gorey also noted that in the US “there were reports of hailstorms last week having stripped cotton in some Texan fields.

“The market will be looking for some confirmation of damage in today’s US crop conditions report,” released later on Monday.