(Agrimoney) – The dollar set another four-year high early on Monday, which was hardly the best omen for agricultural commodity prices.
The greenback was boosted in part by the cautious market sentiment provoked by pro-democracy protests in Hong Kong.
These demonstrations sent Hong Kong stocks down 1.8% although, perhaps in a sign of some success by authorities in preventing the unease spreading to mainland China, Shanghai stocks ended up 0.4%.
Whatever, a stronger dollar is viewed as undermining prices of dollar-denominated commodities by making them less affordable to buyers in other currencies.
China soybean fears
Still, ag commodities did not perform too badly, especially by recent standards, in early deals, although soybeans, of which China is the top importer, did weaken by 0.5% to $9.06 a bushel for November delivery, as of 09:45 UK time (03:45 Chicago time).
That was the lowest for a spot contract since February 2010, with nerves over China particularly high given the talk of the country now taking aim at imports of US soybeans, in terms of taking issue with an (unknown) genetically modified variety, after rejecting cargos of US corn thanks to biotech worries.
“Concerns over a GMO soybean variety have added some concern to the soybean market, questioning Chinese soybean purchases,” CHS Hedging said.
Renegotiation tool?
But is the market really approaching a doomsday scenario?
“Since China imports most of their soybeans from Argentina, Brazil, and the US, it’s unlikely they will abruptly stop importing soybeans over a GMO issue, since they depend on imports to meet most of their consumption,” said Terry Reilly at Futures International.
This contrasts with corn, in which the country “will be self-sufficient this year”.
Another broker said that China was, reading between the lines, “probably looking to renegotiate some open contracts that were made while prices were much, much higher”.
Still, offering hedge funds a little confidence in selling is that official data late on Friday showed them reducing their net short in Chicago soybean futures and options by 10,000 contracts from a historically high level – opening the potential for fresh short positions.
GM wheat discovery
By contrast, in wheat, hedge funds raised their net short by more than 11,000 lots nearly to 79,000 contracts, the highest on data going back to 2006.
That did appear indeed to make investors think twice about selling further, despite the negative news late on Friday of the discovery in the US of a fresh batch of genetically-modified wheat, this time in Montana, apparently left over from Monsanto research some years ago.
That could spell issues for US wheat exports, with the spring wheat grown largely in Montana particularly at stake.
Asian importers in particular appear to be are sensitive to GMO concerns, as shown by the last finding of left-over biotech wheat, in Oregon last year, after which the likes of Japan took its trade elsewhere for a while.
‘Minimal impact’
Still, unlike then, the Montana GMO wheat was found at a research centre, rather than on a farm, and was found on only 1-3 acres, rather than the 100+ acres in the Oregon incident.
The latest finding “is expected to have minimal impact on futures prices”, Terry Reilly at Futures International said.
Indeed, wheat futures rose 1.0% to $4.78 ¾ a bushel in Chicago for December delivery, as the record net short, at a time when some investors believe selling has gone too far for now, encouraged a bit of position covering.”
“At this time, the supportive technical feature is oversold conditions,” said Brian Henry at Benson Quinn Commodities.
He added that “holding the prior lows is paramount, if the wheat markets are going to trigger additional short covering”.
Spring wheat itself for December rose 0.5% to $5.35 ¾ a bushel in Minneapolis.
Harvest progress
Wheat’s strength helped corn gain too, by 0.5% to $3.24 ¾ a bushel for December, despite decent US harvest progress of late, expected to be shown reaching about 20% in US Department of Agriculture (USDA) data later today.
“Weekend rainfall was near expectations,” said weather service MDA, noting that while there was some rainfall, typically in south west Iowa, “amounts were 0.10-0.75 inches, with less than 10% coverage”.
But, more positive for prices, “wet weather in most areas this week will slow corn and soybean dry down and early harvesting”.
Yield expectations
Furthermore, not all yield reports are positive (only the vast majority).
At Iowa-based Market 1, Mike Mawdsley said: “I did hear a few reports from western Iowa, where northern leaf blight is an issue – 120-170 bushels per acre corn has been reported so far.
“Thus not everyone is seeing 250+ bushels per acre. But, will those areas where yields are off a bit, be enough to make much of a difference?”
Brian Henry at Benson Quinn Commodities said: “I expect the trade to remain focused on the yields they are using – maybe a 174 bushels-per-acre figure. There hasn’t been evidence to this point that the yield is below that.”
He also highlighted the prospect this week of US inventory data which, while normally a big potential market mover, may not prove so this time, given huge supplies expected from the current harvest which dwarf any consideration of what is left over from the last.
“Stocks data could indicate that the carry-in was below expectations, which wouldn’t be a game changer,” Mr Henry said.
Palm vs soft oils
Back in the oilseeds complex, palm oil eased 0.1% to 2,174 ringgit a tonne in Kuala Lumpur, depressed by Chicago soybeans, but also by bearish comments from influential analyst Dorab Mistry.
Palm oil futures are vulnerable to a fall back to 1,900 ringgit a tonne, which would be a five-year low, he told a conference, restating a somewhat bearish view, which has seen him predict that prices will fall back to the cost of production, around those levels.
He cited the relatively strength of palm oil prices compared with those of rival vegetable oils.
“At this current price structure demand will gravitate towards soft oils and away from palm,” he said, reminding of the northern hemisphere winter, when palm oil, thanks to a relatively high solidifying point, is less used as a biodiesel feedstock.
Sugar soars
In New York, raw sugar was a notable winner, soaring 1.7% to 16.84 cents a pound for March 2015 delivery, as investors continued a rush of short-covering in the face of a potentially severe seasonal drop in Brazilian output, a hangover from drought.
There are quite some short positions to cover, with hedge funds net short more than 42,000 lots as of last Tuesday, the biggest net short since January.
