(Agrimoney) – Monday brought something that crop bulls really didn’t want – fresh concerns about China.
Chinese industrial profits fell 0.3% year-on-year in June, according to the National Bureau of Statistics, reviving concerns about the world’s second-largest economy.
The report “supports our view that China’s economy is not on a solid footing”, Barclays said.
Soft Chinese markets
Shanghai shares tumbled 8.5%, weighing on stocks in other markets too, with shares opening more than 1.0% down in the major European exchange, and sliding 3.2% in Hong Kong.
With China a major buyer of commodities, including agricultural ones, the gloom cast a bit of a shadow over raw materials markets too.
Corn for January tumbled 2.8% to 1,996 yuan a tonne on the Dalian exchange, the contract’s first close below 2,000 yuan a tonne, while January soymeal dropped 1.5% to 2,711 yuan a tonne, and palm oil for January settled down 1.4% at 4,802 yuan a tonne.
Shanghai rubber dropped 2.3% to 12,705 yuan a tonne, having earlier recorded losses of more than 4%. (Industrial commodities tend to be more sensitive to economic woes than food-related ones.)
Weather outlook
And, in ags, the weak signals from China came at a point when Chicago sentiment was already wobbly, with weather turning better for crops in many geographies.
This week in the Midwest, MDA noted that “drier weather in central and eastern areas will ease wetness concerns”.
Meanwhile, in further north, “expected showers in the southern Prairies and north western US Plains will ease dryness concerns”.
In Western Australia, where dryness has also been an issue, “weather forecasters expect the grain belt will continue to get good rains over the next week or so”, said Tobin Gorey at Commonwealth Bank of Australia.
Europe, where MDA said that “dryness will continue to stress corn and sunflowers across central and southern areas”, is one of the few regions still flashing red in grain weather terms.
Data later
More on what weather has meant for US crops will be known later, when the US Department of Agriculture unveils weekly crop progress data.
In fact, this is broadly expected to show corn and soybean condition ratings to stay unchanged or show a modest increase, at a time of year when falls are usually in vogue.
“Seasonally, crop ratings are starting to decline week-on-week so outlook for better ratings goes against trend,” said Kim Rugel at Benson Quinn Commodities.
And longer term, as regards weather, “currently early August looks to turn a touch cooler with precipitation expected to be normal to above,” Ms Rugel said.
“This just the kind of weather a soybean crop loves as it moves into key pod-setting phase.”
Fund positioning
And then there are the technical factors.
Major corn and soybean futures in the last session closed below 200-day moving averages – besides some other chart indicators, such as in the oilseed the 50% retracement from the June low to the July high, a key point for followers of Fibonacci analysis.
Meanwhile, data late on Friday showed that hedge funds had not undertaken nearly as much selling in the week to July 21 as had been expected.
Indeed, in soybeans, they raised their net long by some 5,000 lots to 90,000 contracts, rather than cutting it to 77,000 lots as had been expected, according to ADM Investor Services.
In corn, the net long was hiked by some 77,000 lots to nearly 280,000 contracts, rather than slashed to 181,000 lots.
Extra fund long positions mean more unfulfilled selling pressure hanging over the market.
‘Likelihood remains bleak’
And this when a weakening real has encouraged Brazilian producers to sell too.
Terry Reilly at Futures International noted how last week’s tumble in Brazil’s currency was, in inflating the local value of assets traded in dollars, “enticing producers to sell inventories”.
The weakening real is also undermining hopes for the US catching up on unusually weak forward export sales for corn and soybeans in 2015-16
“The likelihood remains bleak for a pick-up as South America continues to be the most competitive offer,” Benson Quinn Commodities said.
“The recent break in the Brazilian real versus the dollar has only reinforced the likelihood of this trend continuing forward.”
Prices fall
In fact, the dollar softened 0.7% in early deals on Monday against a basket of currencies, with China’s worries seen as potentially undermining the Federal Reserve resolve to raise US interest rates.
And there was some more upbeat demand news from late last week, when official data showed the number of cattle placed on feedlots as of July 1 up 2% year on year at 98.4m head, a little above market expectations.
Extra cattle on feedlots means more feed needs.
Still, Chicago corn for September shed 2.5% to $3.82 ¾ a bushel, surrendering its 40-day, 50-day and 100-day moving averages too, as did the better-traded December lot in losing 2.4% to stand at $3.93 ¼ a bushel.
Soybeans for August dropped 1.0% to $9.81 ¼ a bushel, supported a little by talk of demand in the US market.
ADM Investor Services noted report that “Illinois and Indiana are tapping rail markets to buy large quantities of beans from North Dakota and South Dakota as strong demand for domestic crushing absorbs supplies that typically would be exported”.
The best-traded November soybean lot fell 1.3% to $9.52 ¾ a bushel.
‘Not as bad as they thought’
Wheat dropped too, although by a less severe amount than fellow grain corn, by 0.9% to $5.07 ¼ a bushel in Chicago for December delivery, as of 09:35 UK time (03:35 Chicago time) having already shed substantial amounts from its June-end high.
Indeed, it is now 18% below that level.
Comment remains over the findings of the CWB wheat tour last week, which showed a crop affected by drought, but not as severely as expected.
“Even with the sharp fall in yield potentials, conditions were not as bad as they thought,” CHS Hedging said.
A tour begins of the northern US Plains this week, expected to show a far healthier spring wheat crop.
Palm down
In Kuala Lumpur, palm oil dropped 1.7% to 2,141 ringgit a tonne, threatening its lowest close in two months, after data from cargo surveyor ITS showed Malaysian exports down 17.7% month on month in the first 25 days of July.
That showed a further slowdown from the 15.5% rate of decline seen in the first 20 days of July, and the rate of 14.6% in the first 15 days.
The drop in Dalian palm oil futures was also a negative.
‘Somewhat positive’
In New York, cotton for December dropped 0.5% to 64.29 cents a pound, little helped, as an industrial commodity, by China’s woes.
Still, fundamentals are not all downbeat for the fibre with, besides the background of firm US exports, Louis Rose and the Rose Report flagging some talk of tightness in importers such as Vietnam.
“Major spinning mills in South East Asia outside of China continue to report a lack of coverage with respect to stocks needed prior to the new crop’s arrival,” Mr Rose said.
“Such is likely somewhat positive for US export sales over the near-term.”
In India, the top cotton producing country, “although monsoon rains have increased… precipitation over the key growing states of Gujarat and Maharashtra continues to significantly lag the average monsoon precipitation pace”.
