(Agrimoney) – The dollar tumbled, providing support for values of many raw materials – but not hard red winter wheat futures, which tumbled to their lowest since 2010.
The CRB commodities index added 1.0% as the greenback fell by nearly as much against a basket of currencies.
(A weaker dollar improves the affordability of dollar-denominated exports, such as many commodities, for buyers in other currencies.)
And many soft commodities managed to exploit the dollar weakness, which Scotiabank said may reflect ideas that the US is not so far ahead of the pack on economic prospects than had been thought.
“Global stimulus, including the impact of loose policy, low oil prices, low yields and currency depreciation across much of the globe appears to be beginning to rebalance the global dynamic,” the bank said.
“This is an important shift,” which raises a “building and important case” for the dollar rally at least to mark time for a while.
‘Producers will sell significantly less’
In New York arabica coffee for July soared 3.0% to 141.50 cents per pound, as the weak dollar encouraged a reversal of recent price weakness which has puzzled many investors, given a stabilisation in Brazil’s real and some bullish fundamental snippets.
The latest comments from International Coffee Organization executive director Roberio Silva have forced a world coffee output deficit of 142m bags, and “becoming bigger” thanks to setbacks from Brazilian dryness.
Robusta coffee edged up 0.5% to $1,827 a tonne despite strong harvest expectations, as fears grow of “bottlenecks” in supplies, including from top producers Vietnam.
“Despite a good crop anticipated in Vietnam, coffee producers there will sell significantly less robusta coffee than last year, preferring to withhold part of their crop instead,” Commerzbank said.
“The reason for this stockpiling is the current unattractive price.”
Brazil rains
Back in New York, prompt raw sugar futures took support from concerns on the progress of the Brazilian cane harvest, as moisture threatens to lower the quality of the crop in the key Centre South region.
Nick Penney, of Sucden Financial, said “Perceptions that mills in Centre South Brazil have started, or are starting, their crush later than had previously been expected have led to an improvement in nearby physical values”.
“If sucrose content is low,” a factor encouraged by rains, “more ethanol than sugar is likely to be produced,” added Mr Penney.
Raw sugar for May added 3.3% to 13.43 cents a pound.
Grind support
Meanwhile, cocoa futures rallied, getting extra help from some stronger-than-expected demand figures from Europe.
The grind – the volume of beans being processed – in western European fell, but by only 1.6%, a smaller drop than had been anticipated, as reported elsewhere on Agrimoney.com.
Cocoa for July soared 1.8% to $2,874 a tonne in New York, closing back above its 50-day and 100-day moving averages, and by 0.9% to £1,982 a tonne in London.
‘Wetter and wetter forecast’
However, progress in grain futures was more muted despite the dropping dollar – two problems for wheat being falls too of rain on the southern US Plains, where drought has been an issue, and a drive in US export sales.
“Wheat continues to drift lower on a wetter and wetter forecast for the hard red winter wheat areas through next Tuesday,” said Darrell Holaday at Country Futures.
“Heavy rain totals are projected from Nebraska down through Texas as the cut-off low slowly moves out of the southwest and across the Plains.”
Benson Quinn Commodities said that the “big weather event the market will be closely watching is the system targeting Nebraska, which could leave up to 3 inch of rain across most of the state this weekend”.
The official US Drought Monitor on Thursday “shows Nebraska experiencing abnormal-to-moderate drought conditions across most of the state”.
MDA said that the “upturn in rains in north western and central Plans areas should replenish moisture and improve wheat conditions”.
Poor export sales
As an extra blow, US wheat export sales data for last week came in at a dismal 47,900 tonnes, a 2014-15 low.
While weak sales can be expected towards the end of the marketing year, a figure as low as that was well below market expectations for at least 100,000 tonnes.
And the 2015-16 figure of 112,500 tonnes, while within the range of market expectations, was hardly bumper.
The data was especially disappointing after some growing signs of buyers returning to the market, with Ethiopia tendering for 400,000 tonnes of wheat, and tenders out from the likes of Iraq, Jordan and Syria too.
That said, to judge by comments from Strategie Grains, it is European wheat which is sucking up the trade.
Stark divide
Kansas City hard red winter wheat for July, the best-traded lot, fell 0.6% to $5.14 ¾ a bushel, a contract closing low.
The May contract dropped 1.1% to $5.08 ¾ a bushel – the weakest finish for a spot contract since July 2010.
What was intriguing was that Chicago-traded soft red winter wheat futures, the world benchmark, did not follow suit, rising by 0.8% to $4.94 ½ a bushel for May delivery, and by 0.4% to $4.90 ¾ a bushel for July.
The premium of Kansas to Chicago wheat has plunged by 70% so far this month, to $0.14 per bushel, May basis.
‘Short position continues to grow’
Soft red winter wheat’s outperformance was hardly down to export sales, which were particularly poor for the variety, showing net cancellations of 29,200 tonnes last week.
However, besides the falling dollar, what hedge funds also had to consider was the huge net short positions they already have in Chicago wheat – unlike in its Kansas City peer.
“The huge fund short position in Chicago continues to grow with funds holding a near record short position of over 101,000 contracts,” CHS Hedging said earlier.
It looked like many investors may be taking profits on shorts in Chicago wheat, and shifting to Kansas City wheat.
Paris wheat for May, meanwhile, ended down 1.1% at E183.25 a tonne, ending (just) below its 200-day moving average for the first time in four months.
A rising euro, up 0.9% against the dollar, besides the fall in US markets more than offset the boost from Strategie Grains upgrades to EU wheat export hopes.
Corn recovers
The revival in Chicago wheat futures allowed for some pick-up in corn too, which for May overcame early losses to stagger 0.25 cents a pound into positive territory at the close, finishing at $3.76 ¼ a bushel.
The fall in the dollar offered a more positive steer to a market which, on the key point of US sowings, is somewhat undecided, with rains hampering planting in some areas, but raising soil moisture levels.
MDA said that, in the Midwest, “rains in north western areas this weekend will improve moisture for corn germination, but planting will remain slow in the south”.
US weekly export sales of 588,200 old crop, and 28,500 tonnes for new, were within the range of market forecasts.
‘Big crop ideas’
On US export sales, it was soybeans which had something of a positive surprise, with orders totalling 312,600 tonnes for 2014-15, twice the most optimistic forecast.
Still, soybeans for May gained only 0.1% to $9.66 a bushel in Chicago, hampered in part by more modest export sales for next season, of 226,200 tonnes – below market forecasts.
And slow US corn plantings could mean extra soybean production this year, if farmers switch acres to the oilseed, which has a slightly later sowing window.
CHS Hedging flagged “big crop ideas for both the US and South America,” with Argentine’s soybean estimated by the Rosario Grains Exchange at 59.0m tonnes “on decent yields”, above a US Department of Agriculture estimate of 57.0m tonnes.
