(Agrimoney) – Grains markets turned higher on Thursday, as dry weather in South America lifted corn and soy prices, outweighing the effect of a weaker Argentine peso.
Thursday morning bought about the long-awaited devaluation of the peso, as the government allowed the currency to float freely.
The move has been seen as bearish, as a weaker peso will encourage exports, particularly as it comes as part of a package of reforms to tariffs and export quotas.
No news
But the devaluation was scarcely news.
Though the Thursday floatation was only announced after the markets closed on Wednesday, it was essentially a done deal when the end of currency controls was announced earlier in the day.
To maintain a currency peg without controls would have forced the Argentine central bank to go head-to-head with speculators, depleting it’s already strained foreign currency reserve to do so.
Darrell Holaday, of Country Futures, noted that the early weakness came from “selling news that is already in the market,” leaving prices “ripe for a rally”.
Slower decline
And in fact the peso did not plunge quite as sharply as might have been feared.
The currency was trading at below 13.5 to the dollar in afternoon deals, where the black market exchange rate prior to the devaluation had been around 15.5 peso to the dollar.
Markets were looking for an exchange rate of 13.5-15.0 peso to the dollar before the currency floated, so the currency is looking fairly strong compared to expectations.
Drier weather
And traders looking to “sell the fact,” or in this case short-cover the fact, could also take comfort from the fact that Wednesday’s historic US rates rise proved to be a bit of a damp squib on the currency markets.
The greenback strengthened today, trading up 0.7% against a basket of world currencies as Chicago markets closed, but it is still down 0.8% from the start of the month, after chairman Janet Yellen gave a speech that stressed the likely slow pace of rates rises to come.
And upward pressure to corn and soybean prices was provided by numbers coming out of the influential Global Forecast System, which pointed to drier weather in grain producing regions of Brazil.
Brazil has seen a shortage of rain in the corn and soybean heartland of Mato Grosso, and the changes to the GFS numbers have undermined hopes that the dry-down will ease.
Weak sales
US export sales data was weak, with the latest weekly corn sales coming in at 579,400 tonnes, where analysts had expected 0.7-0.9m tonnes.
Joe Lardy, of CHS Hedging, called the numbers, which were around half last week’s figures, “very disappointing”.
Soybean sales also missed expectations, at 887,800 tonnes, where markets had looked for 0.9-1.3m tonnes.
Informa cuts sowing hopes
But there was some support as private analytics firm Informa Economics lowered its forecast for next year’s US corn and soybean planting.
Informa cut its forecast of US corn sowings by around 1.2m acres, to 88.926m acres, up from 88.4m acres this year.
Informa cut forecast soybean sowings by around 0.8m acres, to 84.537m acres, which would still represent an all-time high.
January soybeans rose 1.5% to close at $8.77 a bushel.
March corn rose 1.2% to close at $3.74 ¼ a bushel.
EU exports picking up
US wheat export sales came in at 320,200 tonnes, in line with expectations of 250,000-450,000 tonnes.
And Consultancy Strategie Grains forecast the EU wheat crop to drop next year.
In its first forecast for next season’s harvest, Strategie Grains saw output in the world’s biggest wheat producer at 143.6m tonnes, down 6.4m tonnes from 2015 and the first drop since 2012.
And Strategie Grains also lifted its forecast for wheat exports this season, adding some additional bullish news for EU prices, and cut by 1.4m tonnes its forecast of stocks at the end of the season, in June next year.
Substantial stocks
The French crop agency FreanceAgriMer on Thursday said that the EU had cleared 1.1m tonnes of wheat for export this week, the highest volume so far this season.
Still, carryout stocks, at 18.4m tonnes, would prove “very substantial”, the group stressed.
March Chicago wheat ended up 0.3%, at $4.84 a bushel.
March Paris wheat closed down 0.1%, at E174.75.
Deficit ideas growing
Sugar prices got a boost as commodities house Czarnikow doubled its forecast of the 2015-16 global sugar deficit forecast to 8.2 million tonnes compared to its previous forecast, made in August.
And Brazilian government crop agency Conab lowered its forecast for productin, in the world’s biggest producer and exporter.
Brazil will produce 34.6m tonnes of raw sugar in 2015-16, Conab said, compared with its August forecast of 37.3m tonnes.
March raw sugar futures in New York rallied 0.8%, at to settle at 14.7 cents a pound.
Coffee production downgrade
But Conab upgraded its estimate for the production of coffee, of which Brazil is also the top exporter.
Conab saw the 2015 Brazilian crop at 43.24m 60kg bags, an upgrade of nearly 1.1m bags from a September estimate.
The biggest production upgrade was for arabica beans, lifted by some 750,000 bags to 32.05m bags.
But the robusta crop was lifted as well, by some 330,000 bags to 11.19m bags.
March arabica coffee settled down 0.8%, at 118.30 cents a pound, while March robusta coffee, which is now the heavily traded contract, settled down 0.5%, at $1,508 a tonne.
Weak exports
Cotton was down as well, pressured by some disappointing US export sales.
US upland cotton export sales totalled 99,500 bales last week, up from the week before but shy of the four-week average, and behind market expectations.
March cotton in New York settled down 0.4%, at 62.99 cents a pound.
