PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 08:30 GMT, Friday, 19th May 2017, by Mike Verdin
Ag prices revive, awaiting next episodes of political dramas

Grain futures started firm, although whether they remain that way may depend on further twists in political sagas in Brazil and the US.

In fact, currency markets were relatively calm in early deals, with the dollar easing 0.1% against a basket of currencies, although the big test will come later when dealing opens in the Brazilian real.

The real plunged on Thursday on allegations that Michel Temer, the Brazilian president, had been secretly bribing Eduardo Cunha, the former lower house of congress head who has been jailed for corruption, to remain silent.

(To remain silent over what is not apparently clear.)

Mr Temer has refused to resign, but ordered instead a rapid investigation into the claims.

Meanwhile, JBS - whose leading Batista brother are said to have started the scandal by releasing a tape of Mr Temer as part of a plea bargain - said overnight that "seven executives of the company… entered into a plea bargain agreement with the Federal Public Prosecutor's Office.

"The agreement establishes the payment of a fine totalling R$225m by these executives, as well as their co-operation with the Public Prosecutor's Office regarding all matters disclosed to the authorities."

And the real's weakness sent dollar prices of a range agricultural commodities tumbling  in the last session.

'Heavy selling'

To recap, besides making Brazilian exports of the likes of coffee, corn, cotton, sugar and soybeans that much more competitive, the depreciated real also boosted the value in local terms of such dollar-denominated assets.

This released a torrent of pent-up selling by farmers who had been awaiting a market reversal, after recent strengthening in the real weighed on Brazilian crop values.

Farmer withholding had been particularly evident in soybeans – and indeed blamed by the likes of Bunge for undermining profits.

"We understand Brazilian producer selling was heavy on Thursday," said Terry Reilly at Chicago broker Futures International.

"Some people were tossing out 3m-5m tonnes" as the amount of soybeans that Brazilian farmers sold.

Low enough already?

But amid calmer early markets, and with Brazilian farmers asleep – most contentedly no doubt – grain futures recovered some of the last session's losses.

This may have been down just to profit-taking on short bets.

Benson Quinn Commodities noted that "winter wheat markets aren't too far from contract lows" as a factor which may limit investors' appetite for selling the grain further, with some question marks over the potential for further downside.

However, there were some news for bulls to latch on to as well, including the US rains threatening spring sowings of the likes of corn, and the newly-started winter wheat harvest in the southern Plains too.

'Violent and powerful thunderstorms'

David Tolleris at writing in the early hours UK time, said that the weather radar showed that "violent and powerful thunderstorms have developed across much of central Oklahoma, central Kansas and pushing into south central Nebraska.

"Many these thunderstorms have hail and are dropping tremendous amounts of rain as forecasted along with lots of high winds and tornados."

And look out over the next five years, the outlook "continues to show the heaviest rains over eastern half of Texas Oklahoma, Kansas, and into much of central and northern Missouri, with amounts up to   4 inches and 75% coverage.

"Lighter rain amounts of  1-2.5 inches cover 80% of Iowa 75% of eastern Nebraska, and 75% of Kentucky, Indiana, Ohio, Illinois, Wisconsin."

Protein factor

Chicago soft red winter wheat futures for July added 0.5% to $4.28 a bushel as of 08:30 UK time (02:30 Chicago time), with observers such as Futures Internationals Terry Reilly flagging the impact of "adverse weather across the southern Great Plains" in offering some support to values.

Hard red winter wheat, as grown in the southern Plans, added 0.9% to $4.29 ¾ a bushel in Kansas City, opening up a premium again over its lower-protein Chicago peer, amid ideas that supplies of quality wheat could remain relatively squeezed.

"It is reasonable to believe the protein level [in hard red winter wheat] could be on the light side" in this year's harvest, Benson Quinn Commodities said.

"The early sample from Texas indicates low protein."

Slow sowings

Meanwhile, rival grain corn added 0.4% to $3.67 ½ a bushel for July, offered support by wheat and by the prospect of US rains meaning some intended US corn area goes unplanted (at least, not planted with corn).

Benson Quinn Commodities said: "Good planting progress is being made in the east. Progress in the western Corn Belt has been limited due to moisture.

"There shouldn't be that much corn to be planted by the weekend."

Mr Reilly said that "some producers wishing to replant corn may not be able to, and its likely many acres will be switched to soybeans."

He restated a forecast that "US soybean planted acreage could be up 250,000-350,000 acres from June intentions and corn acres to end up 750,000-1m acres lower".

Bouncing beans

Even so, soybeans themselves managed gains too, adding 0.4% to $9.48 ¼ a bushel for July, bouncing from what was the contract's weakest close, in the last session, in 13 months.

"I would not be surprised to see volatility in the real and soybeans increase as this [Brazilian scandal] plays out," said Benson Quinn Commodities.

"The technicals in soybeans offer a weaker outlook, but it wouldn't take much to push the bean market into oversold territory."

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