(Agrimoney) – The caution by Janet Yellen that world financial turbulence could hurt US economic growth was poorly received by stock markets, but was not all bad for ags.
Share markets slid further after Ms Yellen, chair of the US Federal Reserve, blamed, um, sliding share markets, as well as factors such as higher risks from China and tighter credit costs for riskier borrowers for conditions “less supportive” of US growth.
London’s FTSE 100 index stood down 2.3% in early deals, while Hong Kong shares marked their return from a trading holiday for lunar new year with a 3.9% tumble.
However, while lower growth prospects are not a positive for commodities either, at least they had the positive of a falling dollar as well as, for food crops, their relatively low correlation to economic fortunes.
‘Awash in lower-priced wheat’
The dollar shed a further 0.3% in early deals, to stand at 95.52 against a basket of currencies – and is now down 4% so far this month, as the prospect recedes of another imminent US interest rate rise.
And, with an easier dollar boosting the competitiveness of dollar-denominated exports, such as many ags, many Chicago contracts enjoyed a strong start to Thursday.
After all, the strong dollar has been a big factor in the much-reduced expectations for US exports of major crops in 2015-16, notably of wheat, seen falling to a 44-year low.
As the US Department of Agriculture said on Tuesday, making its latest downgrade to wheat export hopes, “a strong dollar is hampering the United States’ ability to compete in traditional markets, much less in a global market awash in lower-priced wheat”.
‘Good news for other exporters’
Indeed, while there has been talk of Russia putting extra brakes on its wheat exports in the run-up to the new harvest – to preserve feed supplies for domestic meat producers it is attempting to encourage to cut a historical reliance on protein imports – there are doubts this would switch demand to the US.
“While this would be good news for other competitive global offers, the flow of wheat would simply shift to other locations that are oversupplied, but cheaper than the US,” Benson Quinn Commodities said.
But could that change if the dollar continues to weaken?
Exports will certainly be on the agenda later, when the USDA unveils weekly export sales data for the US, expected at 150,000-350,000 tonnes for wheat (current crop year and 2016-17 combined).
The previous week, 2015-16 export sales were pegged at 66,155 tonnes, and next season’s at 87,800 tonnes.
Indian imports
Benson Quinn Commodities added that “concerns about the overall quality of South American [wheat] production are worth noting”, with Argentina’s crop garnering headlines on Wednesday for its low protein levels.
(Argentina is the southern hemisphere’s second-ranked wheat exporter after Australia.)
And fears over dryness damage to the crop in India, the second-ranked wheat-producing country after China, are also gaining consistent attention, as they reverse the country’s brief return as a wheat exporter.
Rabobank forecast that India’s wheat imports “in 2015-16 to reach 1m tonnes, twice as high as the USDA forecast – and in 2016-17, they might grow even more, to above 2m tonnes”.
‘Under pressure again due’
Certainly, sentiment was improved enough to help Chicago wheat futures for March gain 0.4% to $4.63 a bushel as of 09:30 UK time (03:30 Chicago time).
But, given dollar weakness against the euro, there were doubts over the strength spreading to Europe, where Paris futures rose on Wednesday for the first time in 11 sessions.
“The European market is under pressure again due to the steadiness of the euro back to $1.13 this morning,” said Agritel.
‘Uncertainty starting to mount’
Back in Chicago, soybeans managed some gains too, amid growing ideas that prices have gone low enough to turn down the production tap, and so tackle ideas of ever-growing supplies.
“Uncertainty over US row crop acreage for 2016 is starting to mount,” said Terry Reilly at Chicago broker Futures International.
“Poor commodity returns from lower ag prices and high input costs may contract the area planted to the 15 major crops by a few million acres from 2015,” albeit with any accurate assessment difficult to determine yet.
‘Improving soil moisture’
Still, headway was limited by the improved prospects for South American production.
“Argentina is forecasted to get another 75% of rain coverage this week improving soil moisture and thus soybean development in the major growing regions of Sante Fe and Beunos Aires,” said CHS Hedging.
In Brazil, top growing region Mato Grosso “will see dry weather over the next five days which is supportive to their soybean harvest progress”.
Chicago soybeans for March rose by 0.1% to $8.63 ½ a bushel.
‘Little meaning to corn traders’
There is also some comment around about fresh Russian sanctions against imports of US crops, potentially from Monday, apparently on concerns over genetically modified varieties.
Still, for corn certainly, “this news has little meaning to traders,” Mr Reilly said.
“Russia has imported a total of 2.65m tonnes of corn during the last 15 years. Of that, the US has supplied only 8.6 percent of those imports, or 228,000 tons.
“Meanwhile, the US exported nearly 700m tonnes of corn to other countries during the same period.”
‘That is worrying’
While corn was unchanged at $3.60 ¼ a bushel for March delivery, it underperformance has been attributed partially to spreading – ie, unwinding of long corn, short soybean/wheat bets.
And ethanol market dynamics are viewed by many observers as having turned less positive too.
“Plunging oil prices mean that ethanol’s premium to gasoline has now widened to around $0.49 a gallon,” said Tobin Gorey at Commonwealth Bank of Australia.
“With ethanol trading so far above gasoline domestic demand for corn from US ethanol plants will fall.
“That is worrying given that US corn ending stocks have already been revised higher due to poor export demand.”
Data later
Thinking of exports, the US export sales data later is expected to come in at 800,000-1.10m tonnes for corn for last week, old crop and new combined.
Last time, sales for 2015-16 were 1.13m tonnes, and for 20156-17 at 14,410 tonnes.
For soybeans, sales are forecast at 300,000-600,000 tonnes.
The previous week, 2015-16 saw net cancellations of 43,645 tonnes, and 2016-17 a positive 65,700 tonnes.
