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.
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."
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.
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.
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 ¼ 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
The European and US weather models "are in pretty good
agreement over the next five days," said Dave Tolleris at WxRisk.com earlier on
"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
"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."
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
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
"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
"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
"Replanting corn will become an issue during the balance of
the month, creating acreage shifts to soybeans."
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 ½ 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