(Agrimoney) – U.S. housing statistics came to the aid of agricultural commodity markets, although some markets made better use of the help than others.
An 11.4% drop in US new home sales last month, biggest drop since July 2013, was seen as behind a sharp drop in the dollar, which fell 0.8% against a basket of currencies as ideas of an imminent US interest rate rise took a knock.
And a weaker dollar supports prices of dollar-denominated assets, such as many commodities, by making them more competitive as exports.
Indeed, the CRB commodities index rose 1.3%.
China output
Most agricultural commodities, it has to be said, did not pull their weight, on CRB terms.
But raw sugar was a notable exception, soaring 3.4% to 13.09 cents a pound in New York for May delivery, helped in part by a forecast by Wilmar of a fall in 2015-16 of Chinese sugar production, after a disappointing result this season.
Wilmar also cautioned over the threat to Brazil’s cane harvest from the El Nino which is seen in progress this year, if in a weak iteration.
However, there was also comment over the extent of long positions among investors which have been using sugar as something of a hedge against depreciation in the Brazilian real, a trend which is now looking very much in remission, if not in permanent reverse.
‘Mexican standoff’
Thomas Kujawa at Sucden Financial noted earlier that with the expiry of the May lot “looming on the horizon” there appeared to be something of a “developing ‘Mexican standoff’ between the longs and shorts” in the contract.
Open interest in the May lot “remains colossal for this stage of events”, so close to expiry (on April 23).
It looks like the longs won the day, with sugar’s rise, which took the May contract back over its 10-day and 20-day moving averages.
Nor was it a complete one-off, with the July contract adding 3.5% to 13.03 cents a pound.
Elastic cotton
Gains were dramatic in cotton too, even though hedge funds already have a substantial net long in the fibre, as Australia & New Zealand Bank noted in wondering how long the trend of increasing hedge fund favour in the fibre can last.
Still, this session, the best-traded July contract soared 4.0% to 65.45 cents a pound in New York, climbing back above its 50-day, 75-day and 200-day moving averages.
OK, the weather forecasts turned a little drier for the US South east, where wet weather has been slowing cotton planting.
But on the bullish side, the demand fears which have captivated investors of late were countered by a sharp pick-up in US export sales, to 144,933 running bales last week for old crop – a sharp improvement on the net cancellations of 21,816 running bales the week before, and countering fears of a more structural drop in demand.
For 2015-16, the US sold 67,136 running bales of cotton too, a six-week high.
‘Significant short-covering’
But grains couldn’t match that kind of performance, although the idea of the dollar inspiring investors to curb some of their short positions in soybeans and wheat, which were at record levels as of last week, looked on the money.
“The weakness in the US dollar has prompted some significant short-covering,” said Darrell Holaday at Country Futures, noting the collision between a “significantly weaker US dollar and commodity markets that are broadly oversold and very susceptible to short-covering rallies”.
At broker RJ O’Brien, Richard Feltes also flagged support to soybean prices from “dwindling crusher ownership” of soybeans and “deference to the Brazilian trucker strike”, even though most view the latter as a “non-event” given high stocks of soybeans at port.
At Country Futures, Darrell Holaday said that the” soybean complex also somewhat supported by some independent truck strikes in Brazil, but indications are that they are having minimal, if any impact on traffic”.
‘Could push sales to the US’
CHS Hedging said that it appears that the “Brazilian truckers strike has the market trading higher… even with ample stocks at port.
“The market is talking about how the current strike could push sales to the US.”
Weekly US export sales data questioned that notion in, while coming in at a decent 102,000 tonnes for old crop, fell to 8,100 tonnes for 2015-16, a dismal figure.
Still, soybeans for July ended up 0.8% at $9.80 a bushel, also helped by improved prospects for US corn plantings, which imply less risk of area being switch to soybeans, which can be later seeded.
And, elsewhere in the oilseeds complex, Statistics Canada data on Canadian sowings lent a hand too, in pegging canola plantings at 19.4m acres, down 900,000 acres year on year, and 800,000 acres below market expectations.
‘Just not fun’
For wheat, short covering was encouraged by data showing improved US export sales last week, at nearly 400,000 tonnes for old crop, up from 48,000 tonnes the week before, with new crop sales showing a more modest gain to 126,660 tonnes.
And even if the concerns over dryness in the US central and southern Plains hard red winter wheat area are easing, another weather threat has grown, with a further bout of coldness which, on crops which have emerged from dormancy, could have caused damage.
“The wheat complex was higher as the market ponders whether there has been frost damage to the winter wheat crop,” CHS Hedging said earlier.
Benson Quinn Commodities flagged “underlying support from another night of lows in North Dakota, South Dakota, Minnesota and Nebraska below freezing.
“Damage will be limited if at all but overnight lows in the teens [Fahrenheit] are just not fun this time of year.”
‘Trended drier’
As for the southern Plains dryness, it has eased, but not disappeared.
The weekly US Drought Monitor showed some improvement in Oklahoma, of which 60.9% was rated in drought, down 4.3% week on week, but less so in Texas, where the extent of drought eased by 0.7 points to 34.6% of the state.
In Kansas, the top wheat growing state, 67.9% was rated in drought, down just 0.3 points week on week.
More rains are on their way for some parts of the southern Plains for now, but the forecast has in the six-to-10 day outlook “trended drier” for the area, weather service MDA said.
‘Moisture shortages’
Furthermore, in the northern Plains, where dry weather is allowing speedy plantings of spring wheat, but into somewhat parched soils, “drier weather will allow moisture shortages to build further”, MDA said.
The proportion of South Dakota rated in drought expanded by 4.5 points to 69.3% week on week, the USDA Drought Monitor showed.
Still, with Canada unveiling bigger-than-expected data for wheat plantings, Minneapolis spring wheat for July ended down 0.5 cents a $5.55 ¼ a bushel.
Kansas City hard red winter wheat did better, helped by the frost fears, gaining 0.9% to $5.17 ¼ a bushel, while Chicago soft red winter wheat for July ended up 0.5% at $5.01 ¼ a bushel.
‘Accelerate corn planting’
That was enough, returning to the theme of the morning market report, to see the premium of wheat to corn recover further from Friday’s low of $1.02 ½ a bushel, July basis.
The premium ended Thursday at $1.24 ¾ a bushel, as corn failed to follow wheat higher, hurt in part by improving prospects for Midwest sowings.
Midwest forecasts show “warming this weekend and turning drier in the 6-10 day forecast which will open window in the eastern half of the Corn Belt for better planting progress”, said Benson Quinn Commodities.
Country Futures’ Darrell Holaday said: “Temperatures next week through the Plains and Corn Belt will be warmer than normal.
“This will accelerate corn planting and emergence in some areas.”
The northern half of the Corn Belt will be “well ahead of their normal planting pace by May 2”.
Strong export sales
OK, corn export sales for 2014-15 last week, at 867,900 tonnes, were not only, in the USDA’s words, “up 48% from the previous week and 68 percent from the prior four-week average”.
They were also well ahead of forecasts of, at best, 600,000 tonnes.
Still, what corn also lacked was the huge hedge fund net short position to make investors think twice about selling.
Corn for July dropped 0.8% to $3.76 ¾ a bushel.
