AM Markets: Dollar Rally Founders, to Relief of Ag Bulls

(Agrimoney) –  The good news for agricultural commodity bulls was that the dollar rally quickly ran out of steam.

The greenback began to show some strength late in the last session, after the Federal Reserve said it would consider an interest rate rise later this year, and begin normalizing a balance sheet sent ballooning by economic revival efforts – in essence, calling an end to quantitative easing.

However, for all the media fuss surrounding the announcement, the greenback ended the day up modest 0.7% against a basket of currencies.

And it was struggling to hold all those gains in early deals on Thursday, easing worries for commodity bulls.

Many raw materials are denominated in dollars, meaning that a stronger greenback makes them less affordable to buyers in other currencies.

‘Limping into harvest’

Indeed, helpfully for US wheat futures, the rouble proved a touch stronger in early trading against the dollar (avoiding a confrontation with its 200-day moving average) so making Russia’s huge exportable supplies of the grain a little less competitive.

There was more talk around about the rising price of exports from drought-hit Australia, putting them out of the running in Asia too, diverting demand to other origins.

“Australia’s crop is limping into harvest and this could send more demand to US shores in the second half of the marketing year,” said Benson Quinn Commodities.

East coast Australian wheat futures for January closed up a further 1.4% at Aus$283.00 a tonne overnight on Sydney’s ASX exchange, equivalent to $225 a tonne, or $6.12 a bushel.

The rising price “implies a good deal of worry about Australia’s wheat crop this year, and in particular how much mid protein wheat it will yield,” said Tobin Gorey at Commonwealth Bank of Australia, who typically compares ASX values with those of Kansas City-traded hard red winter wheat.

‘High rainfall in store’

Argentina’s soon-to-be-harvested wheat crop remains a worry too, thanks to persistent rains.

“Concerns over wetness in Argentina will likely linger through the end of September,” said CHS Hedging, flagging forecasts of a “very mixed weather pattern across South America, with high rainfall in store for parts of both Argentina and Paraguay”.

Benson Quinn Commodities added that “with the funds still significantly short in Chicago, there just isn’t much of a reason to push prices back to their lows”.

But nor was there the impetus to extend headway, and confront Chicago’s December wheat contract with a 40-day moving average (at a little under $4.55 a bushel) that it has not closed above in nearly two months.

Chicago wheat for December stood down 0.25 cents at $4.49 ½ a bushel as of 09:20 UK time (03:20 Chicago time).

‘Needs to stay competitive’

While terming gains in the last session “another data point suggesting that seasonal lows are in place,” CBA’s Mr Gorey added that “we do not though have a lot of optimism that prices can gain a lot more.

“Neither Chicago nor Kansas trading seemed to have the appetite to rise beyond $4.50 a bushel.

“US pricing, more importantly, needs to stay competitive” to support exports.

More on this will be known later, with US Department of Agriculture weekly export sales data expected for wheat to come in at 300,000-500,000 tonnes.

‘Margins holding positive’

Nor could corn build on its (modest) gains of the last session, standing down 0.1% at $3.49 ½ a bushel – a small move, but one which signally surrendered the psychologically important $3.50-a-bushel mark.

“Corn looks to be establishing a long-fought-out sideways trading range, where higher prices will discourage demand and increase new producer selling, while low prices support demand and short off supply,” said Benson Quinn Commodities.

On the demand side, USDA data later are expected to show corn export sales of 700,000-1.0m tonnes.

And there remains broadly positive comment on US ethanol production data on Wednesday, despite it showing a drop of 14,000 barrels a day to 1.03m barrels a day.

This still represented a 5.3% rise year on year, and Benson Quinn Commodities flagged that “ethanol margins are holding positive and some plants are looking at expansion”.

Still, there is lots of talk too of pressure on corn prices from the expanding US harvest.

Soy slips

Such is the case in the soybean market too, a factor which is offsetting the support to values from worries over dryness delaying Brazilian sowings of the oilseed, and wetness threatening to hamper Argentine plantings of the oilseed (which start in earnest next month).

Furthermore, weekly US export data will also be closely watched, after a string of recent announcements through the USDA’s daily alerts system which has given hope of catch-up after a worryingly slow pace of forward orders for 2017-18.

Weekly US export sales are expected to come in at 1.2m-1.5m tonnes.

For now, Chicago soybean futures for November stood down 0.3% at $9.66 ¾ a bushel.

Elsewhere in the oilseeds complex, palm oil for December dropped 0.6% to 2,753 ringgit a tonne, undermined by a drop of 1.0% to 34.56 cents a pound in Chicago futures in rival soyoil.

‘History ain’t what it used to be’

In New York, cotton futures for December were lower too, down 0.4% at 68.98 cents a pound, although remaining well within their recent trading range.

“It seems as though the market is sitting with its hands on heads for now as the traders decide what to do with their 80,000-contract long futures positions,” said Ecom.

“Everyone is waiting for the next move and the specs are definitely hoping that the direction is up.”

Ron Lee at Georgia-based McCleskey Cotton said that “history tells us that a 6.0m-bale carryout,” as the USDA has forecast for the US this season, excluding hurricane losses, “equals a price that begins with a 5.

“But history ain’t what it used to be these days. There is simply too much uncertainty out there – it’s around every corner.”

Mr Lee added that “our prediction of a market that should stay within the 66.00-76.00 cents a pound well-defined range is still probably as good as any”.