(AgriMoney) – It was hardly a banner day for risk assets, with the Federal Reserve’s announcement that it would keep up the rate of its bond buying, to support the economy, viewed with little surprise.
Shares stood lower on Wall Street in late deals, while the CRB commodities index losing 0.2% to close at its lowest in nearly three months.
And many agricultural commodities did their bit to depress the index.
‘Dampening expectations’
Raw sugar, for instance, dropped 0.7% to 18.32 cents a pound, maintaining its clean sweep of losses this week, depressed by the return of talk to the comfort in world supplies, despite the disappointing closing weeks of the crushing season in Brazil’s Centre South, and the fire at the Copersucar terminal in the port of Santos.
“Thailand, the world’s second-largest exporter, plans to export a record 8.5m tonnes in 2013-14, while it is estimated that India could increase its exports 10-fold to 3m tonnes,” Commerzbank said.
“At the same time, high Chinese inventory levels are dampening expectations for demand,” with Kingsman forecasting a drop of 40% to 2.5m tonnes in the country’s imports in 2013-14.
“All in all, we believe that sugar prices will stabilise at the current level,” Commerzbank said.
‘Improved crop conditions’
Still, also for investors to consider was a 5,000-tonne upgrade to 645,000 tonnes in the US Department of Agriculture Brasilia bureau’s estimate for the Brazilian cane crush in 2013-14.
While not a huge upgrade, the forecast represented a departure from the downgrades based on setbacks to Centre South rainfall.
The bureau cited “improved crop conditions in the North East region”, the smaller cane producing area, with the forecast for the Centre South figure nonetheless kept at 585m tonnes, higher than estimates from many other commentators.
Sure, the bureau did lower its estimate for Brazil’s overall sugar output, to 38.8m tonnes, citing the switch by mills to turning cane into ethanol rather than the sweetener.
But this was still above estimates from many other analysts. Macquarie, for instance, has the figure at 37.2m tonnes.
Fibre frays
Also maintaining its downswing was cotton, which dropped 0.6% to 77.84 cents a pound in New York for December delivery, the lowest close in nine months.
The fibre is feeling the impact of rising stocks for delivery against New York futures, easing concerns over a squeeze on these supplies, with inventories up to 141,425 bales, from 134,991 bales the previous session.
The ongoing US harvest is also weighing on prices, boosting available supplies, while reduced Chinese import buying are also cheering cotton bears.
More will be known on demand for US cotton, from China and elsewhere, in export data on Thursday, which promises to be a bumper session, catching investors up with all weeks lost because of the Washington shutdown.
Most see the mood music in cotton as indicating a relatively low figure, although Luke Mathews at Commonwealth Bank of Australia did detect “numerous reports of robust physical demand at these prices”.
Russia, Brazil factors
Still, faring worse than either sugar or cotton was wheat, which dropped 0.9% to $6.75 a bushel in Chicago for December delivery, the lowest finish in more than a month, although not quite enough to take the contract back below its 100-day moving average.
The grain had some cause for firmness, after USDA staff in Moscow cut their forecast for Russia’s harvest to 51.5m tonnes, 2.5m tonnes below the department’s official figure, and reduced the figure for exports to 15.0m tonnes, 2.0m tonnes below Washington’s official guess.
Furthermore, Brazil raised again the quota for tariff-free wheat imports, this time by 600,000 tonnes to 3.3m tonnes, in a sign of the country’s continued needs, amid a disappointing, weather-hit domestic harvest.
The US alone has so far in 2013-14 exported 2.20m tonnes of wheat to Brazil, with a further 450,000 tonnes on order, compared with zero tonnes, on both scores, as of a year ago.
Indian move
However, will data on Thursday filling in the blanks on US export statistics caused by the Washington shutdown live up to expectations, of 1.5m-2.0m tonnes for the three weeks to be reported?
Nerves ahead of the data were one reason for investors to take profits.
Another was a decision by India to drop to $260 a tonne, plus taxes, from $300 a tonne, its floor price for wheat, setting the scene for what could be record exports in 2013-14.
Many analysts have expected the high value at which India’s government has bought wheat, at $300-350 a tonne, to limit its appetite for cut-price shipments, with the UK’s HGCA bureau, for instance, saying two weeks ago that “lower global prices and minimum export prices are likely to limit exports”.
Paris wheat lost early gains too, easing 0.1% to E201.75 a tonne.
Buying spree
With wheat lower, corn, which has relied a bit on its fellow grain for support, dropped too, despite data showing a further jump in US ethanol production.
Output last week rose 14,000 barrels a day to 911,000 barrels a day, the highest in 16 months.
Also on the demand score, South Korea reportedly bought a further 368,000 tonnes of US corn for April delivery, and Taiwan 60,000 tonnes for February.
“South Korea has bought 500,000 tonnes of corn in the last two days,” Iowa-based broker US Commodities said.
Export competitiveness
And why not, when US prices are increasingly competitive, besides being on the futures market at around three-year lows.
“Black Sea corn values are now 5 cents a bushel over US values, while Brazil corn is now 5 cents a bushel cheaper than US corn,” US Commodities said.
“This is vastly different than the summer when Brazilian and the Black Sea corn was 50-60 cents-a-bushel cheaper than US corn.”
And, as an extra support, hedge funds already have a huge net short position in the grain, raising concerns over the threat of a spike in prices if these holdings
are covered.
‘Difficulty making space’
However, weighing on prices as ever was the large extent of the US harvest, and ideas of yields proving better than initially expected.
While markets will gain a better indication on Friday of yield ideas, when data are expected from Informa Economics and FCStone, for now the talk is that farmers have so much crop on their hands that their discipline in not selling the grain at relatively low prices is eroding.
CHS Hedging said: “As yields continue to look impressive, many areas are having difficulty making space for this corn crop,” meaning that cash markets are becoming better fed.
Still, traders are also “noting that ground piles are becoming increasingly common”, the broker added.
‘Basis has rebounded’
It was left to soybeans once again to nurture hopes for Chicago bulls, in rising 0.6% to $12.87 ½ a bushel for November delivery.
The better-traded January lot gained 0.5% to $12.76 ½ a bushel.
The grain is being helped by the release from harvest pressure as the US approaches the last chapter of its harvest, with 77% of the crop in the barn as of Sunday.
“With rain slowing down progress and many areas wrapping up soybean harvest, soybean basis and spreads have rebounded after their slide earlier this week,” CHS said.
Palm oil pull
Furthermore, the soy complex gained support from the strength elsewhere in oilseeds in palm oil, which closed in Kuala Lumpur up 2% at 2,547 ringgit a tonne, its best close in eight months.
Soyoil itself, a rival to palm oil in many uses, added 1.6% to 41.62 cents a pound in Chicago, for December delivery.
Soymeal, the other main product of processing soybeans, lagged, but still gained 0.2% to $411.80 a short ton.
CHS flagged that “some industry leaders have noted that PEDv concerns have not yet made a noticeable impact on soymeal demand,” despite the debilitating and potentially fatal hog virus being found in 18 states.
