AM Markets: Palm Oil Hits 4-Year Top, Leading Oilseeds Rally

(Agrimoney) – Don’t mix up your beans in these Trumpean times. Hours after arabica coffee beans closed down 5%, soybeans staged a bit of a rally, retaking the $10.00-a-bushel mark, January basis.

It was no coincidence that the Brazilian real, which plunged more than 5% against the dollar in the last session, was steady so far in this one.

(A weak real undermines the value, in dollar terms, of assets such as coffee and soybeans, in which Brazil is a big player.)

Palm soars

But there was more than that behind the 1.4% rise to $10.11 ¾ a bushel in January soybean futures in Chicago as of 09:30 UK time (03:30 Chicago time).

Another surge elsewhere in the oilseeds complex, in palm oil, was a big support, with January futures soaring 3.5% to 2,996 ringgit a tonne, and earlier hitting 3,089 ringgit a tonne – a four-year high.

Weakness in the ringgit – as investors continue to punish emerging market currencies over concerns of what Donald Trump’s reign as US president might bring – helped, in boosting the value in ringgit terms of assets traded globally in dollars.

More than currency

Still, the ringgit was down only a further 0.2% against the dollar in early deals.

Indeed, excluding currency moves Kuala Lumpur palm oil futures, trading at the equivalent of spot on $700 a tonne on Friday, have gained 3.4% since before Mr Trump’s victory in the US presidential election was known.

Palm futures continue to be supported by worries over Malaysian production, following data showing a 17.6% slump in output year on year in October.

There are concerns, as Agrimoney.com has highlighted that a labour shortage may be involved, rather than just the oft-quoted dryness setback, which might be expected to work its way out of plantation performance.

‘Low soil temperatures, frequent rains’

Palm oil’s surge helped January soyoil futures gain 1.3% to 35.46 cent a pound in Chicago, in turn offering support to soybeans themselves.

And growing worries over Argentina’s 2016-17 crop offered support too, with heavy rains meaning the current sowings period is not going to plan.

The Buenos Aires grains exchange overnight estimated Argentina’s soybean plantings at 10.9% complete, well behind the 20% completed as of a year ago.

“Initial progress was slow due to the low soil temperatures and frequent rains,” the exchange said.

And, while restating an estimate that sowing will fall by 2.5% to 19.6m hectares, it warned that “revisions are not ruled out, if conditions for crop establishment do not improve during the prime soybean sowing window”.

‘More rain is forecast’

And improvement does not look a certainty.

“More rain is forecast for the south west [of Argentina] next week and so won’t allow for much additional progress to be made in that area,” said Tobin Gorey at Commonwealth Bank of Australia.

(As an extra support to the vegetable oils rally, it is worth noting Argentina is the top exporter of soyoil, as well as soymeal, having acted to encourage processing in-country, and keep for itself value gains from crushing.)

Meanwhile, the farmer selling which might weigh on soybean prices a bit has not been evident.

“The producer has turned very quiet with harvest near complete and the market trading well off its late October highs,” said Benson Quinn Commodities.

Cotton soars

Elsewhere in the broader oilseeds sector, cotton received a boost too, soaring 2.0% to 70.57 cents a pound in New York for December delivery, and by 2.0% to 71.21 cents a pound for the better-traded March lot.

The March contract is now up 3.4% since Wednesday’s close.

The rally was attributed in part to data on Thursday not bad US cotton export sales for last week, up 5% week on week to 168,800 running bales.

“US export sales were up on both the previous week and the previous year, adding a touch of fundamental support” for prices, CBA’s Tobin Gorey said.

However, there was also talk of futures benefiting from a Chinese buying spree of industrial commodities, including cotton, purchasing potentially spurred by fears that Mr Trump, if he lives up to pre-election rhetoric, could kick start a round of trade wars.

Sales uptick

Back in Chicago, grains showed less vigour, with wheat futures for December gaining a modest 0.2% to $4.05 ½ a bushel, reversing some of their losses of the last session.

The net decline over the past two sessions comes despite strong US export sales last week, at 770,000 tonnes, the second-best figure of 2016-17 and termed “very good” by Joe Lardy at CHS Hedging.

“The current sales pace is better than the last two years but still lagging just behind the five-year average,” he added.

More on the world wheat trade scene will be known later, with the release of bids and results from the latest wheat tender by Gasc, the Egyptian grain authority.

‘No meaningful rainfall’

Furthermore, the latest official US drought monitor report showed dryness spreading in the key Plains winter wheat area.

In Oklahoma, the area rated as being in drought fell by 0.7 points week on week to 37.1%.

For Kansas, while the area in drought remains relatively low, at 11.7% it was up 7.5 points week on week.

And this when little rain relief looks forthcoming.

“Weather forecasters continue to expect dry parts of US hard red winter wheat regions to remain that way with no meaningful rainfall on the horizon,” CBA’s Tobin Gorey said.

“Importantly, temperatures are now beginning their seasonal slide too – we are now headed to a time when the plants might not be able use any moisture anyway.

“That will cement the crop with poor establishment going into the cold and leave it vulnerable until it is blanketed in snow.”

‘Precipitation will be welcome’

Wheat’s small gains were enough to see it regain a touch of premium over corn futures for December, which fell by 0.2% to $3.42 ¾ a bushel.

This despite strong  foreign demand for US supplies, with export sales last week at 1.2m tonnes, and a further 140,000 tonnes announced on the day in orders by Saudi Arabia.

Still, prospects look good for the crop being planted in Brazil.

“Forecasters say conditions in Centre West Brazil will favour a wetter bias over the next 10 days or so.  So long as it does not become too heavy then the precipitation will be welcome,” Mr Gorey said.

And slow Argentine soybean sowings could see some area switched to corn, for which the second plantings window opens next month.