Wheat Markets Under Pressure, Even as Election-Panic Eases

(Agrimoney) – Donald Trump’s unexpected presidential victory may have weighed less heavily on agricultural futures, but the bearish tone has been slower to fade as well.

The turmoil unleashed on macro-markets seems to be ebbing away, as the dollar trims its sharp losses, crude oil steadies, and safe haven currencies like the Euro and Yen fall back.

Markets appeared to have been reassured by a conciliatory speech from the President-elect, who will take office early next year.

“The early prospect of an upset win by Donald Trump in the US presidential race caused stock markets to plummet and gold to soar,” noted US cotton analyst Louis Rose.

“However, post a very gracious and reassuring acceptance speech by Trump in the early morning hours, most markets pared losses and regained their composure,” he said.

Wheat still under pressure

But in agricultural futures, the mood remains distinctly bearish, with Chicago wheat barely recovering in early trades, while tropical softs markets are under pressure from the ongoing weakness in the Brazilian currency.

On paper, the weakness in the dollar might be seen as supportive for dollar-denominated commodity futures.

But Mr Trump’s protectionist stance on world trade raises the possibility that US grain exports are about to get scarcer.

For example, well over half of US soybean exports, and a sizable chunk of cotton exports, go to China, which Mr Trump has signalled out repeatedly as a potential target of sanctions.

And Mexico, another country threatened with trade sanctions, is the second-ranked importer of US corn and wheat.

So although the fall in prices have not been catastrophic, markets are down as the risk-on attitude, which dominated the previous session, (when the “smart” money seemed to say a Clinton victory was in the bag) switches to risk-off.

Soybeans trim losses

“Grain markets are lower as investors react to the US Presidential election results,” said Paul Georgy, at Allendale.

“Extreme trading ranges in outside markets overnight as the results became clearer,” he said.

“Investors are taking a risk-off approach as the results have stunned the world and the pollsters got it wrong.”
December Chicago wheat futures were down 0.8% at $4.11 ½ a bushel in early morning deals, having reached lows of $4.08 ¼ a bushel.

But January soybeans have had a more pronounced recovery, falling to lows of $9.94 a bushel, before recovering to 10.07 ¾ a bushel at time of writing, down 0.4% on the previous session’s close.

December corn futures were down 0.5% in early deals, at $3.52 ½ a bushel, after reaching as low as $3.47 ½.

Softs feel pressure

In soft commodity futures, pressure is coming from weakness in the Brazilian real, the world’s top exporter of sugar and coffee, as well as a general instinct to pull back, as markets chew over an election outcome that was unexpected, to say the least.

The real plummeted on the news of Mr Trump’s victory.

The currency of Brazil has proven to be highly responsive to recent developments in the presidential race of its second-largest trade partner.

The real was down some 1.9% against the dollar in early deals, at R$3.228, having reached as low as R3.3249 to the dollar.

The move is bearish for coffee and sugar futures, as it encourages exports, and will go a long way to counteract any support from the weak dollar.

Funds sell-off

“With the weaker dollar we were expecting a bounce this morning,” said Nick Penney, senior trader at Sucden Financial. “The opposite was the case”.

“It almost as if some Fund/large speculator just wanted to liquidate and ask questions later.”

March raw sugar futures were down 1.2% in early deals in New York at 21.70 cents a pound, having recovered from lows of 21.34 a pound.

Arabica coffee futures were down 0.9%, at 165.95 cents a pound, up from lows of 163.20 cents a pound.

After some wild swings both sides of unchanged, December cotton futures were down 0.3%, at $68.52 a pound.