(Agrimoney) – The first of the three big batches of data expected on Tuesday went bears’ way.
The Malaysian Palm Oil Board estimated Malaysian palm oil inventories last month at 1.74m tonnes – down 1.5% from the January number, and a seven month low, but above the 1.67m-tonne figure that investors had expected.
While production dropped 3.4% to 1.12m tonnes, just about as expected, exports dropped 18.4% to 971,640 tonnes – the lowest figure since July 2007, and a bigger drop than analysts had forecast.
Palm oil futures for May stood 1.7% lower at 2,233 ringgit a tonne in Kuala Lumpur as of 09:20 UK time (03:20 Chicago time), falling back below their 100-day moving average for only the second time in the past month.
More data
Still, there are two important reports yet for agricultural commodity investors to get their teeth into.
The next is from Conab, the Brazilian crop bureau, which unveils monthly crop data later, statistics will especially closely monitored for any change in the estimates for the soybean crop, currently being harvested, and the safrinha corn sowings which follow.
AgRural became the latest analysis group to revise its forecast for the Brazilian soybean harvest, actually lifting the figure by 1.5m tonnes to 93.4m tonnes.
Many other commentators have been cutting their estimates, citing early year dryness, and rains since which have slowed harvest and potentially caused a bit of crop damage.
Still, “the trade is honing in on a Brazilian production estimate in the range of 92.5m-94.5m tonnes,” said Brian Henry at Benson Quinn Commodities.
‘Delays to fieldwork’
Indeed, the third set of data today, from the US Department of Agriculture on world crop supply and demand, in its monthly Wasde report, is expected to show a Brazilian soybean production figure of 94.0m tonnes, which would represent a 500,000-tonne downgrade.
The Wasde is also expected to cut the estimate for Brazilian corn output by 380,000 tonnes to 74.62m tonnes, while raising forecasts for Argentina’s corn crop by 540,000 tonnes to 23.54m tonnes, and soybean harvest by 880,000 tonne to 56.88m tonnes.
That said, some of the optimism over Argentine production has been eroded by heavy rains which have caused some flooding in growing areas.
And there remain concerns over wetness in Brazil too.
“There will be some delays to fieldwork in Brazil and that will slow early supply,” said Tobin Gorey at Commonwealth Bank of Australia.
“Traders will probably want a more favourable weather pattern for fieldwork to persist in the forecasts before assuming South American soybean supply will not be materially delayed.”
Brazil strike threat
The theme of delays to Brazilian supplies reaching port, thanks to industrial action by truckers, remains live too, with a meeting today which it is feared could, if it goes wrong, bring a fresh round of industrial action.
“Brazil government officials and trucker representatives reportedly will meet again to talk about lower fuel prices and higher transportation rates,” Terry Reilly at Futures International noted.
CHS Hedging said: “There is talk that the Brazilian trucker strike may start back up if Tuesday’s meetings with government officials aren’t successful.”
Still, for now, soybeans for May dropped 0.7% to $9.86 ¾ a bushel for May delivery, undermined in part by a stronger dollar, which got off to a strong start, adding 0.6% against a basket of currencies.
Soybean futures were also hurt by soyoil, which for May dropped 0.9% to 30.72 cents a pound, dented by the weakness in rival vegetable oil palm oil.
Soymeal exports
Soymeal, the other main soybean processing product, fell a more modest 0.4% to $332.70 a short ton for May delivery, helped by a resilient US cash market for the feed ingredient.
At Chicago broker RJ O’Brien, Richard Feltes said he suspected the “firm domestic soymeal basis is driven by expanding US hog and poultry numbers and a 1.3m-tonne gain in US soymeal export commitments compared with last year”, while highlighting that 3.7m tonnes of soymeal orders remained to be shipped for the season.
A year ago, unshipped orders were just 1.8m tonnes.
“Keep your eye on soymeal export shipment pace out of Brazil and Argentina,” besides US data, he advised, with the South American countries major competitors in the market, and to where importers would likely switch if they cancel orders from the US.
‘A little on edge’
Among grains, wheat, the star of the last session, suffered a bit of profit-taking this time, even though market talk remains less dismal.
Benson Quinn Commodities, for instance, noted “talk of dry conditions in the near term in the southern US Plains, northern Europe and portions of the Black Sea region.
“Given the time of the year and a slightly drier bias for many key wheat growing areas, some weather premium in these markets is merited.”
CBA’s Tobin Gorey said: “Weather forecasters continue to expect only light precipitation in dryish US winter wheat regions over the next week or so. That has the market a little on edge.”
Export talk
Furthermore, there is more optimism over demand, with CHS Hedging saying that “the relative price decline of wheat in relationship to corn should continue to encourage additional wheat into feed rations.
And on US wheat exports, there is market talk of sales to South Korea and Vietnam of soft red winter wheat, the type traded in Chicago.
On hard red winter wheat, as traded in Kansas City, CHS Hedging said: “There is talk in the trade of the possibility that Brazil will buy 2-3 cargoes of US new crop, but nothing has been confirmed.”
Still, thinking of new crop, one of the issues may be that short-term needs have been met, leaving importers more relaxed over making purchases.
“As wheat futures have continued to trade lower, many millers have continued to add coverage. Some now have coverage into the first quarter of 2016,” CHS Hedging added.
Wheat for May stood 0.8% lower at $4.86 a bushel in Chicago.
‘Corn-soybean spreading’
Corn futures for May fell too, by 0.3% to $3.87 ¾ a bushel, undermined by the strong dollar and weakness in oil markets, besides the losses in rival grain wheat.
Still, the relationship between corn and soybean prices continues to grow in focus, as US spring sowings approach, and with the two crops keen competitors in planting programmes.
CHS Hedging said: “Corn-soybean spreading has been a popular trade as traders anticipate more soybean acres and fewer corn acres” in a USDA plantings report on March 31, compared with initial estimates released last month.
Nonetheless, there are also some ideas that corn may prove a little more popular than some investors believe, thanks to an improvement in corn futures prices, compared with those of soybeans.
Real softness
Among soft commodities, early weakness in the real helped ensure raw sugar futures for May got off to a weak start, falling 1.7% to 13.05 cents a pound, their lowest since 2010.
The correlation between sugar prices and the Brazilian real has “reasserted itself”, Tobin Gorey said, after a “hiatus” late last week.
Arabica coffee prices, which Rabobank sees recovering above 150 cents a pound, proved a little more resilient, in easing 0.4% to 136.50 cents a pound.
A strong real lowers the value, in dollar terms, of assets in which Brazil is a key player, such as coffee and sugar.
Cotton, however, edged 0.01 cents higher to 62.26 cent a pound for May delivery, baulking at a fall back below a clutch of moving averages, including its 50-day line at 61.94 cents a pound.
