(Agrimoney) – Agricultural commodities got off to a somewhat sluggish start to the week – but better than that managed by shares.
Shares fell 3.0% in Tokyo, eased in early deals in Europe, and are expected to open some 7 points lower on Wall Street, as measured by the S&P 500, which set a closing record high of 2,039.8 in the last session.
Stocks have been hit by official data showing a surprise fall by Japan’s economy, the world’s third biggest, back into recession.
Japan’s GDP shrank at an annualised pace of 1.6% in the July-to-September quarter, compared with expectations of 2.2% growth.
And the shrinkage in the previous quarter was put at 7.3%, on an annualised basis, more than the 7.1% previously stated.
‘Funds aren’t afraid of owning commodities’
Is resilience in grains and weakness in shares more than a coincidence?
In January, there was some feeling that ags were gaining some support from softness in stocks, as investors sought succour in alternative markets.
“Perhaps the strong recovery in the gold market confirms the signals that funds aren’t afraid of owning commodities that had been under pressure near these levels, at least, until the technicals fail,” said Brian Henry at Benson Quinn Commodities.
That said, not all commodities are in favour, with Brent crude continuing its slide in early deals on Monday, trading at $78.13 a barrel, down 1.6% on the day and below a June high of $115.71 a barrel.
In favour
Back to ags, and data from the Commodity Futures Trading Commission show that hedge funds have taken a more positive view in the last couple of months.
Their net long in futures and options in the biggest 13 US-traded agricultural commodities has recovered from less than 245,000 lots in late September to more than 480,000 contracts, data from the Commodity Futures Trading Commission show.
Still, the switch has been led by covering of short positions, down by nearly 250,000 lots, rather than increased long holdings, which benefit when prices rise, which have actually shown a small decline.
US weather
The short-covering has been fuelled in part by improved technical factors, with grains turning back over main moving averages last month and, largely defending their positions.
However, there are some fundamentals on their side, with the cold weather in the US gaining increasing attention, as a potential impediment to corn and soybean harvesting, and the broader crop logistics problems leaving buyers willing to pay up to secure supplies.
The cold is also seen as a potential threat to newly planted winter wheat seedlings.
In fact, this week, the latter stages of “corn and soybean harvesting should progress well in central and western areas” of the US Midwest, MDA said.
But further ahead, “precipitation across the Midwest will slow any remaining corn and soybean harvesting,” the weather service said.
Overall, MDA said that the weather suggested “declining” corn, soybean and wheat condition in the US.
‘Excessive moisture’
There are weather setbacks elsewhere too, including in South America, where CHS Hedging noted reports of “excessive moisture in the major growing areas”.
Besides being a setback to sowings, for wheat, which is being harvested, “concerns over the quality of the crop continue to increase”, the broker said.
This when harvest-time rains have already dented the quality of wheat crops in the likes of Canada and France, and have caused some damage to Western Australia’s harvest too.
‘Positive momentum’
Indeed, soft red winter wheat for December rose 0.e% to $5.62 ¼ a bushel in Chicago as of 09:30 UK time (03:30 Chicago time), although it has failed so far to top its two-month high of $5.64 ¾ a bushel set in the last session.
It may have been some help that CFTC data for the week to Tuesday showed a short-covering wave in the contract slowing, leaving the net short at 31,135 lots, undermining ideas that this trend of position closing had run out of potential ammunition.
Corn for December was flat to $3.81 ¾ a bushel.
Chart-wise, “corn continues to hold the trend line,” Benson Quinn Commodities’ Brian Henry said.
In the last session a “lower trade and a close near the low side of the daily range are both negative inputs, but the market hasn’t done a whole lot of technical damage.
“Weekly studies are showing positive momentum with the highest weekly close since mid-July.”
Meal battle
As for soybeans, they were helped somewhat by grains to see-off pressure from an easing in prices of soymeal, whose strength has been a major prop to grain markets over the past month.
Soymeal for December fell 0.9% to $376.50 a short ton, undermined by continued talk of buyers, even potentially US ones, preferring South American supplies in the face of huge US prices.
Terry Reilly noted ides of “soymeal basis breaking late in the week in South America”.
Benson Quinn Commodities talked of “more rumours of soymeal cargoes being switched to South American origins with Argentina and Brazilian meal offered at steep discounts to US Gulf”.
‘Severely overpriced’
For soybeans themselves, last week’s rally “has not only come with increased US producer selling but also with a bout of old crop selling from the Argentine farmer which has helped replenish two tight pipelines”, Benson Quinn Commodities added.
Meanwhile, another US broker talked negative on soybean price prospects, noting an Informa Economics estimate on Friday of US sowings of 88.322m acres next year, up from this year’s record of 84.2m acres, (if slightly lower year on year).
“This means if we produce a trendline yield we could actually surpass this year’s record production for soybeans,” the broker said.
“If South America produces the crop they are expecting we have to assume the beans are severely overpriced and have dollars of downside risk – as soon as the soymeal logistical problem has been solved.
“We do not believe this soybean rally will hold unless we have an absolute crop failure in South America this year.”
Data later
Still, soybeans for January at least managed to hold at $10.22 ¾ a bushel, up 0.25 cents, given support by grains, but also some resilience in vegetable oil markets.
Soyoil for December was flat at 32.20 cents a pound in Chicago, while rival vegetable oil palm oil added 0.3% to 2,222 ringgit a tonne in Kuala Lumpur.
Palm oil’s rise came despite data from cargo surveyors showing a small decline in Malaysian exports so far this month, with Intertek putting the drop at 4.5%, and Societe Generale de Surveillance estimating it at 2.5%.
That implies a slowdown, with Societe Generale de Surveillance putting the decline in the first 10 days of November at 0.2%, and Intertek having for that period seen a rise of 1.3%.
Soybeans later face the gauntlet of monthly Nopa data for October on the US crush, expected to show a figure of 144m bushels, down from 157m bushels a year ago, but with a wide range of estimates – from 127m-161m bushels – indicating the degree of uncertainty over the statistics.
‘Good harvest weather’
In New York, cotton for March fell 0.6% to 59.28 cents a pound, seeing renewed weakness after failing in the last session to regain the psychologically important 60 cents-a-pound mark.
The fibre, as an industrial commodity, is also more attuned to the broader economic mood.
At Commonwealth Bank of Australia, Tobin Gorey added: “Weather forecasters expect good harvest weather to continue in the US.”
In Australia, where dryness has been an issue, “weather forecasters expect cotton regions to get some rain this week but the amounts are modest and the coverage patchy.”
