Sugar futures hit six-year low, corn dips to contract low

(Agrimoney) – Ag bears dug their claws in a bit further on Wednesday to secure some headline landmarks in both grain and soft commodities markets.

In fact, falls were not universal among agricultural commodities, with robusta coffee for July, for instance, rebounding 2.7% from a 15-month low to close at $1,618 a tonne in London.

The market had the first chance to react to an estimate out on Tuesday night from Terra Forte, the exporter, pegging the Brazilian coffee harvest this year at 47.28m bags, up only marginally from the 46.78m bags last year.

That is “one of the lower estimates seen in the last week or two”, Jack Scoville at Price Futures said, noting that “other estimates have been at or above 50m bags”.

Robusta vs arabica

The estimate comprised a forecast of 32.05m bags for arabica, up from 29.34m bags last year, and 15.23m bags for robusta, down from a bumper 17.44m bags in 2014.

And indeed, robusta performed better than arabicas, which managed only a 0.4% bounce to 124.50 cents a pound in New York for July delivery.

Nonetheless, relatively weak robusta prospects have long been forecast for Brazil this year, following dryness in the main producing state of Espirito Santo, and there was more than the Terra Forte disparity to the performance gap in robusta vs arabica futures.

Short-covering, ie to take profits after the particularly steep decline in robusta prices over the past week, was also seen as a big factor in boosting prices.

Six-year low

Still, the prevailing wind for ags was downward, and with raw sugar a headline underperformer in closing down 1.7% at 11.87 cents a pound, the weakest close for a spot contract in New York since January 2009.

The sweetener has been undermined by the continued rollback of forecasts for the world to return to a production deficit, with estimates for the current Brazilian cane crop ticking higher, and Indian prospects better than initially thought.

Softness in the real has also hurt, undermining the value, in dollar terms, of assets in which Brazil is a major player.

“A strong dollar and weaker commodity prices in general should lead sugar in a continued downward trend in the short term,” said Nick Penney at Sucden Financial said.

While weather forecasters” are now expecting seasonable to slightly wet conditions in south Brazil this week, with a likely return to seasonably dry conditions after that” the threat to cane harvesting looks weak, said Tobin Gorey at Commonwealth Bank of Australia.

“South Brazil mills are unlikely to experience widespread crushing delays if those forecasts are realised.”

Strong rating

In Chicago, a key scalp for bears was in corn futures to match the contract closing low for the July lot, at $3.49 ½ a bushel, down 1.6% on the day.

The grain was undermined by the confirmation overnight of the strong condition of the US crop, rated 74% “good” or “excellent” by the US Department of Agriculture, better than the average start of 69%.

And there just seem no weather threats for now in the Corn Belt to warrant investors plugging risk premium into prices.

“Many believe overall weather is favourable with warmer temperatures and ample moisture to allow good development,” said CHS Hedging.

Cash market woes

OK, not all the news was quite so bearish, with grain demand ideas getting a boost from an Australia & New Zealand Bank note, and the tailing off in the US bird flu epidemic.

CHS noted USDA comments that the “number of cases of bird flu has begun to decline and is likely to end with warmer summer temperatures”.

However, on the negative side, Darrell Holaday at Country Futures highlighted softness in US cash markets, amid ideas of farmer selling picking up.

“The cash movement has become relentless” in corn, Mr Holaday said, flagging the potential for “some financial stress” to be stoking selling.

A concern is that “bankers are making producers come up with some cash as their loan margins have narrowed significantly because of loss equity on the balance sheet” from machinery purchases and so on.

‘Quality problems are likely’

Nor did wheat help its fellow grain, after USDA data overnight showed the condition of the US winter crop remaining stable overall last week, despite the inundations in Oklahoma and Texas.

Not that this is the end of the weather concerns, with disease noted as a factor in a number of states, not just in the Plains hard red winter wheat area.

“Quality problems are likely to still develop across several hard red winter wheat states,” Terry Reilly at Futures International noted.

In the lower US Midwest, soft red winter wheat country, crop condition “may decline this week with too much moisture and warm temperatures possibly promoting quality declines”.

MDA forecast that “continued active rains early next week will maintain wetness and disease threats in southern and north western [Plains] areas”.

‘Leans negative’

But there was limited appetite for extending long positions in wheat without some back-up weather problems elsewhere.

And the weather outlook “leans negative [for prices] internationally, with a slightly wetter outlook for southern Russia, scattered rains for western Canada” said Richard Feltes at RJ O’Brien.

In fact, in Russia, Agriculture Minister Alexander Tkachev said that southern areas – particularly important in pricing terms as the source of export supplies – should harvest as much grain as last year.

Mr Tkachev also restated a forecast for a Russian grains harvest of 100m tonnes this year.

Hard wheat’s hard fall

Meanwhile, Origin Enterprises, owner of agronomy operations, talked of the “excellent” condition of crops in the UK, the European Union’s third-biggest wheat grower, and fourth- ranked Poland.

London wheat actually fell a relatively modest 0.6% to £120.00 a tonne for November delivery, helped by weakness in sterling, which boosts the competitiveness of UK exports.

Paris milling wheat for December dropped 1.4% to E180.00 tonne.

Still, the biggest faller was Kansas City-traded hard red winter wheat, which for July tumbled 2.3% to $5.12 ¼ a bushel  – and is now down more than 8% in two session, as the relatively modest damage to production prospects from US floods to far prompted withdrawal of risk premium.

Chicago soft red winter wheat for July, the world benchmark, dropped 1.0% to $4.87 ¾ a bushel.

Soymeal support

Still, soybeans managed some gains, adding 0.3% to $9.27 a bushel in Chicago, with the US rains promoting a few worries over US sowings of the oilseed, which has a slightly later planting window than corn.

“The labour issues in Argentina may also deserve some credit for the soybean market not breaking further,” said Brian Henry at Benson Quinn Commodities, also noting that “domestic crush margins are good for this point this in the year”.

Processing margins got a hand from a rise of 2.0% to $308.10 a short ton in soymeal futures for July, helped by talk of European demand and by the waning US bird flu concerns.