PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 09:50 GMT, Thursday, 7th Sept 2017, by Mike Verdin
AM markets: cotton market bluster eases, as Irma winds drop

Hurricane Irma looks to have saved her worst for the Caribbean.

Certainly, the hurricane is still forecast to hit Florida, in the east, late in the weekend, before tracking north, largely over the Atlantic, to hit land again in south east Georgia.

But the trail of destruction Irma leaves in the US should prove less harrowing than that in the likes of Barbuda and Saint Barthélemy islands, with winds below 100mph by the time the storm hits any major US cotton-growing areas, according to the National Hurricane Center.

"Irma, which was thought could become another worry for the US cotton fields, looks to be calming down," said trading house Ecom.

 "It seems by the time is moves up through Florida and up to Georgia, most of the force of the storm will have hopefully have dissipated."

At Commonwealth Bank of Australia, Tobin Gorey said that "weather forecasters now expect less rain on cotton crops in the US's South East". 

Harvey damage

That is not to say that US cotton farms will escape without loss.

"There may be some winds and rain which could possibly affect areas with high percentage of bolls open," Ecom said.

And this when damage assessments of Hurricane Harvey to cotton crops in Texas and the Delta have failed to meet some of the scary figures initially banded around.

"The estimates for losses are still sitting around 300,000-500,000 bales," Ecom said.

Whatever, Rose Commodity Group estimated overall US cotton production in 2017-18 at 20.50m bales a huge crop, and a figure only 50,000 bales less than the US Department of Agriculture's official forecast made pre-Harvey (and which will be updated next week).

Quality factor

However, the major worry for US supplies may be over quality, for which damage may be notably more widespread than for quantity, rendering supplies.

"The next few weeks will shed light, on where the December futures will trade, to as the amount of available end-of-year immediate supply," Ecom said.

For now, the New York December cotton futures contract fell 0.8% to 73.90 cents a pound, as of 09:40 UK time (03:40 Chicago time), with investors feeling comfortable at removing a little risk premium.

Harvest pressure looms

In Chicago, corn futures took a definite step into negative territory too, shedding 0.5% to $3.59 a bushel, with the lot still struggling to build on its sharp late-August surge.

In fact, as CBA's Tobin Gorey said, "US Midwest weather is providing a sympathetic soundtrack to analysts cutting their US yield forecasts," with cool and dry conditions potentially curtailing yield prospects. 

And early Corn Belt harvest reports, for what they are worth, are not so impressive, market talk says.

Furthermore, producer selling remains limited, with Benson Quinn Commodities noting that farmers are "disengaged with the price action at these levels.

"The only bushels that have to move in front of harvest are getting sold."

But there is the harvest to factor in, the prospect of a surge in US corn supplies, and consequent pressure on values.

'Good selling opportunity'

In fact, Benson Quinn Commodities - albeit talking of soybeans, for which US harvest is also looming - said that "this week is good selling opportunity for the producer as seasonality turns lower into early October".

CHS Hedging flagged the prospect of the imminent Brazilian soy-planting season, with seasonal soy-free periods (enforced in an effort to control pests and diseases) lapsing, eg on Monday for Parana.

"Brazil is expected to increase soybean planting this year by 2-3%," CHS Hedging said, if adding that production was expected "to be limited from ideas of a lower yielding crop.

"Total production is estimated at 108m tonnes versus 114m tonnes for 2016-17."

'Floor under the market'

However, as one broker said, demand ideas are keeping a "floor under the market till new supplies arrive in the pipelines".

Besides hopes for further orders from China, data on Tuesday from the Census Department showed US exports as of July running 38m bushels ahead of the USDA estimate.

This implies that the USDA should "raise export demand around 25m bushels and lower 2016-17 carryout alike to 340m-345m bushels", Benson Quinn said.

Chicago November soybean futures stood 0.2% higher at $9.73 a bushel.

Aussie rally goes on

Wheat, meanwhile, eased at least in Chicago although by just 0.1% to $4.45 a bushel for December delivery.

Prices continue to rise in Australia, where east coast futures for January added a further 0.4% to Aus$267.50 a tonne, taking gains for this week to 6.8%.

"Weather forecasters are expecting little that will arrest the decline in crop conditions," said CBA's Tobin Gorey, as dryness and cold tests winter grains in eastern Australia.

Spring vs winter

Furthermore, Minneapolis spring wheat futures extended their recovery from levels deemed oversold compared with prices of, lower-protein, winter wheat when there are rekative shortages of quality grain in the world.

December spring wheat gained 0.9% to $6.50 a bushel, back at its 10-day moving average, and taking back above $2.00 a bushel a premium over Chicago wheat (December basis), a gap which had dipped to a two-month low of $1.82 a bushel on Tuesday.

The premium remains well below a high of $2.69 a bushel reached a month ago.

Still, the "availability of cheap global supplies will limit what the US winter wheat markets are able to do to the upside," Benson Quinn Commodities noted.

"The Black Sea has plenty of wheat to sell. The French need to find another outlet besides Algeria."

Palm down

In Kuala Lumpur, palm oil for November dropped back 0.7% to 2,726 ringgit a tonne, ahead of much-anticipated data next week on Malaysian supply and demand.

The data are expected to show Malaysian palm stocks last month at 1.90m tonnes, a 6.5% rise month on month, based on ideas of 1.6% growth in exports in July (from June)  and only a small fall in production from the bumper July figure.

From a technical perspective, palm oil futures have found it hard (as they did again on Wednesday) to break convincingly above their 200-day moving average, at 2,771 ringgit a tonne.

Still, the big news for vegetable oil markets on Thursday may be a European Union announcement on reductions to import levies on Argentine biodiesel, tariffs which censured by the World Trade Organization last year.

(Biodiesel is made from vegetable oils, including rapeseed oil largely in the EU itself.)

"Rapeseed prices are still evolving inside a narrow range in anticipation of the European policy regarding biodiesel imports," Agritel said.

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