PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 09:10 GMT, Thursday, 18th May 2017, by Mike Verdin
AM markets: ags fall, as 'Washington chaos' deters investors

Be careful what you wish for.

Many investors have been bemoaning the lack of volatility in markets, with cotton among the few assets to keep dancing while others took a breather.

But price movement sped firmly back on the agenda in the last session, when the S&P 500 share index the Wall Street benchmark dropped 1.8%, shedding all of its gains for May, and indeed suffering its worst day in eight months.

The Vix volatility index, the so-called "gauge of fear" soared 46% on Wednesday, to one of its highest closes in the past six months.

'Escalating Washington chaos'

And price moves downward, for risk assets, appeared a feature of early deals on Thursday too, undermined by something of a risk-off feel amid investor nerves over US political turbulence, most lately news that the Justice department has appointed a special counsel to investigate the Trump campaign's ties to Russia.

"The gap lower in equity markets, on escalating Washington chaos, could trigger sidelining in other asset classes as well, including ag markets," said Richard Feltes at Chicago-based RJ O'Brien.

"We are inclined to believe that managed fund ag shorts are driven more by unfolding weather conditions than DC drama, but nonetheless recognise that possible derailment of the Trump presidency would have implications across all asset classes.

 "The sizeable managed fund short in corn and wheat is unlikely to cover if White House woes worsen."

Dollar revives

As an extra negative, this change in mood which also saw gold soar 2% in the last session, its best performance since June underpinned the dollar, also seen as something of a safe haven, edging 0.2% higher to 97.6 against a basket of currencies.

This reversed some of the boost to agricultural commodities from the dollar's weakening trend of late, which makes dollar-denominated assets that much more affordable.

And this when demand has been a big support to grain values, with the US attracting unexpected orders of late in soybeans and wheat in particular, and extending a decent performance in corn shipments.

Data later

The theme of US exports will come into particular focus later, when the US releases export data for last week expected to come in at up to 200,000 tonnes in sales of old crop wheat (for which the US 2016-17 marketing year ends this month) and 200,000-400,000 tonnes for 2017-18.

For corn, export sales are forecast at 500,000-750,000 tonnes for 2016-17, and 50,000-250,000 tonnes for 2017-18.

For soybeans, sales are expected to come in at 200,000-400,000 tonnes for this season, and at up to 200,000 tonnes for 2017-18.

Cotton expectations

Still, the data are perhaps particularly important for cotton, given that it was the US export data last week which were credited with triggering the surge in prices to a near-three-year high, from which they have subsequently retreated.

Still, at 80.22 cents a pound as of 09:00 UK time (03:00 Chicago time), New York's July contract remains some 5% above their close as of Wednesday last week, if up a modest 0.1% on the day.

"Analysis of pertinent suggest that total net sales figures both against the current and upcoming marketing years put forth for the week ending May 11 are likely to resemble those put forth last week," said Louis Rose at Rose Commodity Group.

"But, we think, the market expects this. It also expects considerable export sales cancellations to be reported on upcoming reports, and we think that those expectations will prove correct."

'Doesn't indicate the US has a competitive edge'

Back in Chicago, the big grains could come nowhere near matching even cotton's performance, although oats for July added 0.2% to $2.36 a bushel, extending their revival of the last session and, signally, climbing back over their 100-day moving average.

Wheat for July lost 0.6% to $4.24 a bushel, reversing most of its headway of the last session, which was helped by success by US wheat in a tender by Egypt's Gasc.

"Gasc also bought cargos from Russia, Ukraine and Romania, so it doesn't actually indicate that the US has a competitive edge," said Benson Quinn Commodities.

"It certainly doesn't indicate that US values needs to run away from business" by getting more expensive, the broker added.

Rains on the Plains

Still, worries do remain about the prospect for heavy rains encouraging disease and quality damage among the crop in the southern Plains, some of which is ripe enough that harvest has started a process which stands to suffer from precipitation too.

The European and US weather models "are in pretty good agreement over the next five days," said Dave Tolleris at WxRisk.com earlier on Thursday.

"Both models clearly show that the heaviest rains will be over central and north eastern Texas, central and eastern Oklahoma, most of central and eastern Kansas, the western half of Missouri, the eastern third of Nebraska, much of Iowa southern and central Minnesota, and a good portion of Wisconsin".

Much of this is prime winter wheat country.

Weather model dispute

Where the weather models are not so aligned is over prospects for corn and soybean-heavy parts of the Midwest.

"There is some uncertainty between the models as to how much rain is going to fall over Arkansas, Tennessee, Kentucky, southern Illinois, Indiana and Ohio," Mr Tolleris said.

"The European model is significantly lighter with the rainfall amounts in those areas showing fairly large gaps the rainfall coverage.

"The GFS model has a much more significant rain shield over a much larger portion of the eastern Corn Belt, and it has a second band of 1-3 inch rains running from south eastern Oklahoma into central Arkansas, northwest Tennessee, western and northern Kentucky and into south western Ohio."

'Illinois's poor ratings'

This matters for the market, given that, now in mid-May, the question is live of whether some corn sowings/replantings will be abandoned, and switched instead to soybeans, which have a slightly later seedings window.

Based on ideas of 1-5-3 inch rains "in portions of the eastern Corn Belt through the weekend", Benson Quinn Commodities said that "some of the late planting and replanting may not go as planned.

"The trade is debating the longer term effects of corn being planted after the optimal planting window, potential acreage shifts", besides "Illinois's poor ratings" as Agrimoney discussed on earlier this week.

The USDA late on Monday showed the corn crop in Illinois, one of the key growing states, at just 42% in "good" or "excellent" health.

A year-ago, the mid-May rating was 68%

'Acreage shifts to soybeans'

That said, the broker added that "given the recent progress, I am not convinced there will be a strong case for shifting corn acreage to beans.

"It depends on how much corn is left to be planted once the next series of rains verifies."

However, at Futures International, Terry Reilly took a more cautious view.

"We think 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," he said.

"Replanting corn will become an issue during the balance of the month, creating acreage shifts to soybeans."

Futures fall

In fact, soybean futures did underperform corn in early deals, perhaps indicating that many investors agree with such ideas.

However, both were notably lower, amid the risk-off feel.

Soybean futures for July tumbled 1.5% to $9.61 a bushel, falling back below 10-day, 20-day and 40-day moving averages.

Corn for July dropped 1.2% to $3.67 a bushel, also falling below a clutch of moving averages, although remaining resolutely within its trading range.

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