(Agrimoney) – Sugar futures ending the month on a weak note on Thursday, as technical signals and profit taking fuelled a late session selling spree.
In grains markets meanwhile, sowings data from the US Department of Agriculture surprised markets with massive corn acreages, while winter wheat and corn sowings missed expectations.
Sugar markets are under pressure as cane cutting and sugar production starts up for the season in the Brazilian Centre South cane belt, with a drier weather forecast promising little disruption over the next week.
“South Brazil’s cut and crush should be able to proceed as planned,” said Tobin Gorey, at Commonwealth Bank of Australia.
And the all-important question of whether cane crushers will focus on sugar production, rather than fuel ethanol, is coming into focus.
“The recent surge in prices and spreads might have simply ensured there is a little more sugar in that mix,” said Mr Gorey.
Climbing a mountain
Markets are still worried about the size of the speculative net long in New York sugar futures.
With the speculators all bullish on sugar, that means there is little room for further buying from hedge funds, and a risk that the hot money may make a rapid exit.
Or, as Tom Kujawa at Sucden Financial put it, with the market has reached a point where “like mountaineers either you have packed extra oxygen or you turn and come back down”.
End of month squaring-off
But pressure may also have come simply from the end of the month, and the quarter, encourage bulls to square their positions after what has been a profitable period.
And selling accelerated late in the session, as the front-month price fell below 15.60 cents a pound, which had previously been identified as a key level of technical support
Even after Thursday’s rapid sell-off, front-month raw sugar futures were up 6.6% on the month, and 2.2% on the quarter.
May raw sugar futures finished down 3.5% on the day, at 15.35 cents a pound, punching back down through the 20-day moving average for the first time in over a month.
Currency strength
The weakness in sugar came despite new strength in the currency of Brazil, the world’s top exporter.
The recent rally in the real has been fuelled by ideas that the country’s president, Dilma Rousseff, is not long for office, as her coalition partners abandon her, and momentum for impeachment gathers.
This is seen as bullish by speculators, who believe this may spark a change in regime, potentially bringing in a more market-friendly administration, of the sort that recently took power in neighbouring Brazil.
Central Bank measures fail
The Brazilian Central Bank has been trying to slow the currencies appreciation through the auction of reverse currency swaps, which is essential the same as short-selling the real in the commodity futures market.
But with less the half the swaps offered in the auction sold, it seems there is a limit to how far the bank will go to weaken the currency.
The real reached a 7-month high of 3.5313 to the dollar, but trimmed gains to trade up 0.1% on the day at 3.5970 to the dollar in afternoon deals.
Coffee finds support
The stronger real is bullish for coffee, of which Brazil is also the top exporter.
May arabica settled up 0.35%, at 127.45 cents a pound, leaving is slightly up on the quarter, although by less than 1%.
May robusta futures settled down 0.2%, at $1,501 a tonne.
Cotton breaks higher
The USDA data was bearish for cotton futures, after US sowings were seen at 9.562m acres, more than 100,000 acres higher than market expectations.
This leaves US plantings nearly 1m above last year’s levels.
The front-month cotton contract saw some volatile action, initially weakening on the report.
But the commodity showed late session strength, rallying in afternoon deals.
May cotton futures closed the day up 1.1%, at 58.33 cents a pound.
Sowings data surprises market
Corn futures plunged on Thursday, as the USDA sowings survey suggested that US farmers will sow 93.6m acres with corn this year, a full 3.6m more than brokers were expecting, a 5.6m acre increase from last year, and the largest in a decade.
There was a touch of additional pressure on corn, as weekly US export sales data undershot expectations, at 790,600 tonnes, were markets were looking for 800,000 – 1m tonnes.
And the Brazilian government announced that it would sell public corn stocks, in an attempt to reduce the high domestic prices, the result of long-term currency weakness, that are hurting margins for livestock producers.
“Out of the public stock total, 160,000 tonnes is expected to go to livestock producers in the northeast and southern areas,” said CHS Hedging.
Stocks data causes few ripples
Thursday also bought US stocks data, showing record large inventories of the main grains as of March 1.
Still, Darrell Holaday, at Country Futures, called the numbers “uneventful”.
“The industry did a nice job of anticipating the size of [the] stocks,” he said.
May corn futures finished down 4.5%, at $3.51 ½.
This represents a three-month low for the front-month contract, and leaves the May contract down 1.5% on the month.
Soybeans go on bumpy ride
The report proved a mixed blessing for soybean futures.
True, the survey pegged sowings at 82.2m acres, nearly 1m acres less than markets were expecting, and a year on year decline, which was supportive.
But the sharp downward pressure on corn weighed on soybean futures prices, which dropped to two-week lows at point.
US weekly soybean export sales came in at 271,000 tonnes, below market expectations of 300,000 – 600,000 tonnes, and the third lowest so far this year.
In the end prices were almost unchanged.
May soybeans finished up 0.1%, at $9.10 ¾ a bushel, up 5.8% on the month.
Spring wheat jumps higher
The report was bullish for wheat as well, showing spring wheat seeding intentions at 11.3m acres, about 1.5m acres less than expected,
“With wheat being the least profitable of the three crops… more-than-ample global and US inventories have encouraged farmers to shift from spring wheat to corn,” said Societe Generale analyst Chris Narayanan.
US wheat export sales came in at 317,100 tonnes, in line with expectations.
Unsurprisingly, it was Minneapolis-traded spring wheat futures that saw the most gains, with May futures jumping 2.8% to finish at $5.26 a bushel.
May Chicago wheat futures finished at $4.72 a bushel, up 1.7% on the day, and 4.2% on the month.
