AM markets: wheat market applauds Egypt’s ergot about turn

(AgriMoney) – Do they really mean it this time?

Ergot – a common fungal contaminant of wheat, which can cause hallucinations if eaten in sufficient quantities – has long been linked to manic episodes of dancing, as widely reported in Europe in the Middle Ages, and called the likes of St Vitus’ Dance or St John’s Dance.

But it has taken until the 21^st century for an ergot void, indeed a manic rejection of the fungus, to have the same effect, and this time in Egypt.

The dance goes like this. First, Egyptian officials accept ergot in the 0.05% concentrations allowed by other importers, then ban it altogether, resulting in the country, the top wheat importer, being cold shouldered by merchants.

Then Egypt pirouettes, and resumes allowing ergot contamination at trace levels, stage a rapprochement with exporters, and so on.

No sellers

The latest deboule put Egypt on Wednesday in the phase of accepting low ergot levels in wheat, in theory opening up the way for merchants to trot back with offers of the grain.

(The last two tenders by Gasc, Egypt’s grains authority, received no offers from merchants, scared that the finding of even a tiny amount of ergot would result in cargo rejection, and likely heavy losses on the shipment.

The previous tender received only one offer, and was like the latest two also cancelled.)

But whether traders are willing to trust Egypt, given the high costs that shipment refusals can impose…

Residual reservations?

“Egypt’s government stepped in to make sure some parts of its bureaucracy ‘got it’, that insisting on ergot free wheat was the fast way to having no wheat,” said Tobin Gorey at Commonwealth Bank of Australia.

“How quickly the trade will trust Egypt again is another question.”

A range of origins, from Canada to Romania, have suffered cargo rejections from Egypt over the past year.

Still, “wheat is buyer’s market right now so we suspect necessity to quickly overwhelm those reservations,” Mr Gorey added.

Fourth time lucky?

Paris-based consultancy Agritel was also optimistic, saying that “Egypt and its providers will be able to restore better relations after the decision to modify again its import criteria in soft wheat.

“Future Gasc tenders should meet more actors and allow the country to increase the pace of purchases.”

Indeed, Gasc was not reluctant to seek a rapprochement with grain traders, overnight unveiling its latest tender.

“The result will be known during the day,” Agritel said, if underling that it is Black Sea supplies, rather than say European or US ones, which are likely to win purchases.

The tender “should confirm the competitiveness of Black Sea players, especially Russia,” the consultancy said, adding that wheat offers from European origins “are not performing especially well to this destination”, ie Egypt.

‘Rains are back’

The fact that the tender is expected only to underline the competitiveness of Black Sea wheat may be one reason why the wheat market’s enthusiasm remained contained in early deals, with Chicago’s December contract up 0.2% at $4.08 ½ a bushel as of 10:00 UK time (04:00 Chicago time).

But there were other reasons for a bit of caution too, including rains which have improved prospects for the Black Sea’s 2017 grains crops (still being sown).

Agritel said: “Rains are back and it is good news for Ukraine after an extended period of [water] stress.

“At the beginning of the week, large precipitations were recorded in the south of the country, especially in the Odessa area.

“Yesterday, rains hit the north half of the country – even if they were light they are offering some relief to a situation becoming critical,” the consultancy said, with the conditions underlining the prospect that “Ukraine will record a significant increase of seeded surfaces for next harvest”.

‘Not in record territory’

Still, futures in rival grain corn did their bit to help, adding 0.2% to $3.40 ½ a bushel for December delivery, and remaining healthily above their 50-day moving average.

This gain despite this time of year typically being a negative one for prices, in bringing the US harvest and a surge in supplies, and allowing the removal of residual risk premium.

What is helping values is that harvest results, while upbeat, are suggesting some doubts that the US crop will come in at quite the highs that the US Department of Agriculture has forecast.

“Earlier this week harvest reports came in at a trickle but on Wednesday the reports picked up a lot of steam,” said Joe Lardy at CHS Hedging.

“Overall soybean yields are very high. Corn yields are good but not quite pushing in to record territory.”

‘Harvest starting to fill the pipelines’

Soybean futures, however, struggled to keep up, against firming ideas of record yield prospects coming true.

November futures eased 0.1% to $9.74 ½ a bushel, although winning so far a battle to stay above their 200-day moving average, at $9.71 ¼ a bushel, which has provided support so far this week.

There was talk of some softness in the US cash market too.

“Domestic processor is starting to back off his spot bid with harvest bushels starting to fill the pipelines,” Benson Quinn Commodities said.

As for worries over weather delaying the harvest, he broker said that “the seven-day forecast keeps heaviest precipitation in the north and western half of the Corn Belt while the east should make excellent progress”.

Oils up

The fall came despite some buoyancy in the vegetable oil markets, where Chicago soyoil futures for December gained 0.7% to 33.88 cents a pound.

Kuala Lumpur palm oil recovered from early losses to stand 0.7% higher at 2,695 ringgit a tonne

August import data for the important ag market of China showed a not so quite negative trend, with soyoil purchases falling 16.7% year on year to 93,284 tonnes, an improvement on the average rate of decline for 2016 (now 21%).

For palm oil, imports dropped 26% to 403,249 tonnes, below the average rate of decline now seen at 30%.

Palm market outlooks

Perhaps more important for palm market was a forecast from giant Sime Darby that prices will stay firm until March, thanks to lingering damage from El Nino to South East Asian output.

The palm oil giant forecast prices averaging 2,600-2,700 ringgit per tonne in the last quarter of this year.

And leading analyst James Fry, at LMC, forecast Malaysian palm stocks retreating for the rest of 2016 from an October figure pegged at 1.75m-1.80m tonnes – although adding that inventories will “soar” from the April-to-June period of 2017, as production recovers.

Sellers tempted?

US trade data will be under the microscope later on Thursday, with weekly export sales statistics expected to come in at 300,000-500,000 tonnes for wheat, 700,000-900,000 tonnes for corn, and 900,000-1.5m tonnes for soybeans.

Cotton bulls will be hoping for a better performance for US exports of the fibre too than last week’s disappointing data although, to judge by a 0.1% fall to 71.53 cents a pound in December futures, they were not banking on it.

CBA’s Tobin Gorey flagged a negative sign from the late in the last session, when futures lost some of their gains in a selling spree.

“The weak finish is worth noting because it suggests the rally has perhaps taken prices to levels that may start to draw out sellers,” he said.

“And spread action on the day was weaker to suggest that the trade is, for the moment, a little less concerned about the December delivery.”

‘Another sell out’

Futures from the Zhengzhou exchange in China were not offering so much of a positive steer as they have done of late, adding just 0.2% to 14,920 yuan a tonne for January delivery.

China is much in focus on the cotton market for the results of its sales from state stocks.

Ecom noted “another sell out at the Chinese reserve auctions” on Wednesday, with all 30,000 tonnes of cotton going, although at an average price of 13,776 yuan a tonne, well below levels on the Zhengzhou.

Still, in what may be another positive sign for Chinese demand, Thursday’s import data for August came in at 69,533 tonnes – down 0.7% year on year, but a marked improvement on the average 2016 pace of decline, now at 46%.