(Agrimoney) – For most commodities, Tuesday was a somewhat negative day.
The dollar edged higher, after core US inflation was shown at 1.7% in February, supporting some ideas of the case for an increase in interest rates.
(A rising dollar depresses prices of dollar-denominated commodities by making them less affordable to buyers in other currencies.)
But agricultural commodities – which performed strongly in the last session, as hedge funds trimmed back some of their record net short – suffered, in the main, worse than most this time.
Raw sugar tumbled 2.3% to 12.45 cents a pound in New York for May delivery, the weakest close for a spot contract since April 2009.
‘Isn’t a bull market’
And this despite some bullish news around, with FO Licht foreseeing a drop in Brazilian sugar production in 2015-16, and the real strengthening earlier on, before the dollar revived on the inflation data.
(A strong real boosts the value, in dollar terms, of assets in which Brazil is a major player.)
“Perhaps we should pay more attention to the old heads in the markets that point out a market that doesn’t rally to bullish news isn’t then a bull market,” said Thomas Kujawa, co-head of the softs desk at Sucden Financial.
“The possibility of a deficit year seems now to have been unanimously discounted and kicked down the road again.”
‘Price action remains bad’
At US-based Price Futures, Jack Scoville said that “overall price action remains bad as traders keep talking about big supplies and average demand.
“Trends in both [London and New York] markets remain mostly down as supply and demand estimates keep prices under pressure.”
London white sugar for May dropped 1.1% to $364.80 a tonne, remaining a little above its six-year low of $360.10 a tonne set last week.
Back in New York, arabica coffee for May dropped too, by 3.2% to 137.30 cents a pound, in a decline viewed as largely technical in nature, after a rally last week stalled.
“Charts show a low, and futures moved away from the low late last week,” Mr Scoville said.
“But bulls have not been able to build on the apparent breakout that formed.”
‘Surprise improvements’
Among grains, the main loser was wheat, which in Chicago tumbled 2.0% to $5.23 ½ a bushel for May, undermined by data overnight showing an increase in the proportion of winter wheat in Oklahoma and Texas, if not Kansas, rated “good” or “excellent”.
“This quite likely caught the market off-guard,” said Darrell Holaday at Country Futures.
Benson Quinn Commodities flagged the “surprise improvements in winter wheat ratings”, and some signs of rains in the forecast to refresh the drought-hit southern US Plains.
“The southern Plains is still expecting some rains in the 6-10 day outlook which will support the winter wheat crop as it comes out of dormancy,” the broker said.
US Commodities said: “The weak El Nino is providing improved weather in North America,” and is linked for instance to rains in Texas, besides cool Midwest summers which help corn yields.
‘Moisture shortages building’
The news was not all quite so negative for wheat, with UkrAgroConsult, for instance, forecast a drop of nearly 2m tonnes in Ukrainian production this year.
MDA warned that “moisture shortages are building” in parts of Russia, where “overall moisture receipts have been well below normal in Central Region, Volga Valley, northern North Caucasus”, as well as Belarus, western Kazakhstan and north eastern Ukraine for the “past couple of months.
“An upturn in showers is needed there in the coming weeks to prevent significant stress on winter wheat once it breaks dormancy.”
Still, with Chicago wheat, the world bellwether, suffering, Paris wheat dropped too, by 1.5% to E192.50 a tonne for May delivery, closing narrowly below its 10-day moving average for the first time in two weeks.
London wheat for May dropped 1.2% to £122.60 a tonne, amid ideas of slow farmer selling for now – which might be storing up price pressure for later.
Sowings lag
Back in Chicago, rival grain corn rose, by 0.8% to $3.93 ¼ a bushel for May, helped by the overnight US crop progress data which showed that southern US rains, while helping winter wheat, had hampered corn sowings big time.
Farmers had not started planting in Arkansas and Mississippi as of Sunday, and sown only 1% of crop in Louisiana – where usually 48% of corn is seeded by now – besides being behind on seedings in Texas too.
And there is some concern over sowings prospects for more major producing areas too.
“For the rest of the week, above-average precipitation and below-average temperatures are expected in the Midwest,” CHS Hedging said, adding that “this is not favourable for spring field preparations”.
‘Significant decrease in US corn acres’
Furthermore, there was a UkrAgroConsult forecast for a 2.9m-tonne drop to 23m tonnes in corn output this year in Ukraine, which has been growing as a competitor in the export market.
And also on investors’ radar is the prospect next week of two key US Department of Agriculture reports, on domestic grain sowings and stocks, with the former viewed with particular anticipation, and expected to show a drop in corn plantings.
“Corn values will continue to be supported by ideas of a significant decrease in US corn acres,” said Country Futures’ Darrell Holaday.
“That is the prevailing thought and that prompts buying.”
‘Negative factor’
Rival row crop soybeans, however, dropped 0.3% to $9.81 ¾ a bushel in Chicago for May delivery, hurt in part by concerns for the economy in China, the top importer of the oilseed.
“Weakness in the latest Chinese PMI Index has been a negative factor for the soybean complex,” Mr Holaday said, after the “flash” reading for this month’s HSBC manufacturing index for China came in at 49.2, down from 50.7 for February, and below the neutral 50.0 level.
Furthermore, slow US corn plantings put upward pressure on ideas for sowings of soybeans, which have a later seeding window.
Investors are already expecting next week’s US sowings report to show record soybean area.
‘Another round of protests’
South America remains a negative to prices in terms of providing harvest pressure on futures, and largely decent yields too.
However, fears remain of a potential restart of protests by Brazilian truckers which could hamper deliveries of crop to ports, so slowing exports and deterring importers.
“Brazilian truckers will meet with the government on Thursday,” CHS Hedging said.
“The government wasn’t in a concession giving mood during their last meeting. If talks don’t go well, there may likely be another round of protests/strikes in the future.”
