(AgriMoney) – The weather gods appear to have long bets on agricultural commodities.
Sure, shares notched up the achievement, in New York, of a record intraday high of 1,857 for the S&P 500 index.
But they weren’t the only assets in demand on Monday.
‘Little chance for rain’
Arabica coffee futures for May touched a 16-month high, for a nearest-but-one contract, of 179.35 cents a pound in New York as meteorologists foresaw no end to the dryness which has left Brazil looking at a surprise decline in its overall coffee production.
“Significant dryness will continue” across eastern Sao Paulo (the top cane state and a major coffee grower too) Minas Gerais (the biggest arabica state) and Bahia, MDA said.
In Brazil, itself Somar forecast “little chance for rain” this week for central and northern Minas Gerais and for Espirito Santo, Brazil’s top state for growing robusta coffee.
Sure, Macquarie cautioned over the role that funds are playing in driving this rally, adding that prices already seem to be factoring in the worst, and warning of the threat of a sharp drop in values if things prove not quite as bad as has been feared.
Still, arabica coffee for May ended up 4.0% at 176.35 cents a pound.
Lowball cane forecast
The dryness has hurt prospects for Brazilian sugar production too, Sao Paulo representing the core of the Centre South region responsible for some 90% of domestic output.
Indeed Copersucar, the world’s biggest sugar and ethanol trader, on Monday, estimated the Centre South cane harvest at 570m tonnes for 2014-15.
That is some 26m tonnes below this season’s crush, as estimated by industry group Unica, and below other forecasts so far.
Unica has said that a rise in output in 2014-15 now looks off the cards, while Rabobank has forecast a crush of 595m tonnes and Macquarie a 585m-tonne harvest.
‘Certainly caused damage’
Marex Spectron said: “If Centre South Brazil sneezes, the sugar world catches cold.
“The long, hot, dry period which lasted until last week has certainly caused damage to the coming crop, may cause more, and is likely to have adversely affected plantings for the 2015 crop.”
Furthermore, there were some thoughts that speculators may have covered more of their short positions than they did – some 12,000 lots leaving a net short of 26,489 in futures and options as of last Tuesday – and “this seems to have triggered buying”, Sucden Financial said.
Raw sugar for May soared 3.8% to 17.68 cents a pound in New York, a three-month closing high for a nearest-but-one contract.
White sugar for May closed up 2.4% at $477.30 a tonne.
‘Price pressure’
Weather played a hand in Chicago too in lifting wheat by 1.9% to $6.17 a bushel for May delivery, and this after spending much of the day in negative territory.
Sure, the political calm in Ukraine, a major grain exporter, undermined values.
“The resolution of the situation in Ukraine initially put price pressure on the corn and wheat markets,” Darrell Holaday at Country Futures said.
Benson Quinn Commodities said: “With the prospects of Ukraine taking steps to calm the populace, it appears some of the risk premium in corn and wheat can come out of the market.
“The trade is more confident that Ukraine will continue to be major player in corn and wheat export markets. Additionally, in the case of wheat, global demand is weak.”
‘Notable moisture shortages’
Rabobank was hardly upbeat over wheat prices either, forecasting a drop beneath the weight of rising inventories.
Still, weekly US exports were good, at 427,239 tonnes as measured by cargo inspections, up more than 120,000 tonnes week on week.
And concerns over winter wheat seedlings racked up a notch with ideas of drier weather in the southern Plains.
While snow cover is rebuilding across northern areas, and “should increase in the western Midwest by later this week… the continued dry pattern in the central and south western Plains will maintain notable moisture shortages”, MDA said.
‘Brutally cold’
And this when “brutally cold temperatures have redeveloped in the US heartland, after a brief warm spell last week”, said Gail Martell at Martell Crop Projections.
“The jet stream this week will carve out a deep cold trough over North America, delivering a fresh batch of Arctic air to the Midwest and Great Plains.”
In fact, Kansas City hard red winter wheat, as grown in the southern Plains, fared less well than Chicago soft red winter wheat, grown in the Midwest, with the May lot adding 1.3% to $6.84 ½ a bushel.
Still, the 100-day moving average, at a little under $6.86 a bushel, provided resistance to upward movement, just as the 75-day moving average, at a bit over $6.18 a bushel set a ceiling for Chicago’s May contract.
In Paris, wheat for May added all of E0.25 to E196.00 a tonne, weighed by the decent prospects for the European crop, besides by closing early, so failing to benefit from the late bounce in US markets.
‘Bearish tone’
Corn too failed to benefit from wheat’s strength, given the signs of Ukraine accord, and rains further west and south in Brazil which are boosting prospects for the safrinha crop, the source of the country’s exports so particularly price sensitive.
Safrinha corn is currently being sown, so will benefit from the rains.
US weekly corn exports were marginally lower, down 40,000 tonnes or so week on week, but still at a respectable 791,947 tonnes.
And CHS Hedging said that “corn futures continue to retreat after the USDA Outlook conference set a bearish tone late last week, with a projected 2014-15 corn carryout of 2.1bn bushels”.
Corn for May eased 0.1% to $4.57 ¾ a bushel.
‘Primed the pump’
Soybeans did better, closing up 1.1% at $13.75 a bushel for May delivery, the best finish for second-in contract in five months.
Indeed, the contract nearly closed the chart gap Agrimoney.com highlighted earlier, which has added technical support.
Another factor Agrimoney.com highlighted last week, Oil World’s cut in its forecast for the Brazilian crop, also seems to have taken a higher profile.
“A lower soybean production estimate for Brazil by Oil World magazine primed the pump for another push higher in old crop soybeans,” Country Futures’ Darrell Holaday said, noting a consensus estimate of about 89m-91m tonnes.
“There is also not a lot of confidence in that [Oil World] number, but it did spark some buying.”
Scalpels out
Benson Quinn Commodities said: “Analysts continue to take scalpels to Brazilian production as extended periods of unfavourably dry conditions have limited production in some areas.
“Excessive flooding is also taking a toll on portions of southern Brazil and portions of Argentina.”
Meanwhile, US soybean exports were also good, at 1.27m tonnes – a lot, given the thinness of US supplies, if down from 1.48m tonnes the previous week.
Indeed, signally, again, there was no cancellation revealed of orders of US cargos by Chinese buyers, who are supposed to be heading for Brazil’s lower priced supplies.
‘More cancellations needed’
“Importantly, only 4m tonnes of unshipped US soybeans remain,” Richard Feltes at broker RJ O’Brien said.
“Trade will want to see cancellation of half that amount to avoid impossibly-tight late summer soybean supplies. No soy cancellations today.”
Benson Quinn said that soybean and soymeal markets were “trying to handicap the values that need to trade to stretch old crop supplies.
“Demand is slowing, but more cancellations are likely needed to stretch old crop supplies to new crop.”
Soymeal for May ended 2.0% higher at $448.70 a short ton, the best finish for the contract, and the highest for a second-in contract in five months.
