PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 08:24 GMT, Thursday, 16th Mar 2017, by Mike Verdin
AM markets: March returns to form, as positive for ag prices

March may be starting to live up to form after all.

The month had, this year, looked to be breaking with its record as a generally positive one for Chicago grain contracts, as soybean futures, for instance, in the last session recorded their eighth successive negative close.

"From a seasonal standpoint, March isn't necessarily a bad month for grains," said Tregg Cronin at Halo Commodity Company, noting that it was the "second best month from a seasonal perspective for soybeans with an average annualised return of 2.0%. 

For corn, March has been, historically, the "second strongest month of the year" too, with an "an average annualised gain of 2.9%".

That said for wheat, the month is not the best although not the worst either.

"Over the last 30-years wheat has an average annualised loss of -0.38%, although January, February, May, June and November are all worse seasonally," Mr Cronin said.

Dollar factor

But March was blessing grain bulls in early deals on Thursday, when wheat actually proved the best performer of Chicago's big three, rising 0.8% to $4.39 a bushel as of 08:15 UK time (03:15 Chicago time) to trade back above its 100-day moving average.

A big help to prices of all dollar-denominated contracts was the greenback itself, which eased a touch further in early trading to less than 100.5 against a basket of currencies, hitting its lowest level in a month.

This after a 1.2% tumble in the last session, which took the currency below its 50-day and 100-day moving averages, despite - or perhaps because of the decision by the US Federal Reserve to raise US interest rates by 0.25 points.

'Therein lies the problem'

Agritel said that the resulting tumble in the dollar looked down to "buy the rumour, sell the fact" trading.

At Commonwealth Bank of Australia, Tobin Gorey noted that the Federal Reserve announcement of the rate rise "contained no surprises though and therein lies the problem. 

"Currency, and other, markets wanted the Fed to suggest the US economy was doing so well that they needed to hurry their rate rises but they didn't."

The result has been that the "agri exporter currencies gained on the sliding greenback", making shipments from the likes of Australia and the European Union that much less competitive.

'A few people nervous'

As an extra help for wheat, worries remain over US winter crop not just the hard red winter wheat, being tested by dryness in the central US Plains, but the [Chicago-traded] soft red winter wheat braving cold too.

Joe Lardy at CHS Hedging flagged "talk of wheat damage due to cold temperatures.

"Freeze potential across the south east Plains has a few people nervous."

'Flurry of international tenders'

While "it is estimated that less than 10% of the soft red winter wheat crop is at risk", the talk comes at a time when US supplies are competitive on the world market, as demonstrated by bids on Wednesday to a tender by Egypt's Gasc authority, to which US soft white wheat was tendered as low as $189.60 a tonne.

Hard red winter wheat was offered at $194.45 a tonne, cheaper than the winning bids from France, Russia and Ukraine, at $195.00-197.70 a tonne, which were favoured by their lower costs of shipping on top.

Gasc bought 420,000 tonnes in all, taking its total purchases for the 2016-17 season well above 5.5m tonnes.

And the likes of Algeria, Jordan and the Philippines are in the market too.

Richard Feltes at broker RJ O'Brien flagged a "flurry of international wheat tenders" helping wheat prices, and indeed backing ideas that the early-March drop in wheat values was merely a correction in a recovering trend which started in early December.

'Margins in the red'

Fellow grain corn, meanwhile, added 0.5% to $3.65 a bushel for May delivery, amid some continued cheer at latest weekly ethanol data, on Wednesday, which showed a rise in US output to 1.046m barrels per day, up 23,000 barrels week on week.

The figure also left output close to its record high of 1.061m barrels per day, set in January, and was accompanied by a drop in inventories too, of 90,000 barrels to 22.766m.

Not that all is well with ethanol producers, with Benson Quinn Commodities noting that output "margins remain in the red using Iowa prices".

CHS Hedging's Joe Lardy said that "margins are hovering right around the break-even level at just $0.04-a-gallon positive".

'Really picked up'

Mr Lardy added: "I often get asked when will production cut back with margins so poor?

"If you look at almost all of 2015, margins were very low and we had good and relatively consistent production."

Furthermore, US exports of distillers' grains, or DDGs, a byproduct of biofuel output used in feed, "have really picked up so we should continue to see strong ethanol production numbers".

CBA's Tobin Gorey, meanwhile, flagged support to corn prices from US exports, prospects for which are of course only supported by the easing dollar.

"A couple of large individual US corn sales were reported this week. That has the market hopeful that lower prices have done the job and improved US export demand."

Data later

Exports will be in focus later with weekly US export sales data expected to come in for corn at 700,000-1.00m tonnes for this season, and up to 200,000 tonnes for 2017-18.

Respective figures last time were 741,121 tonnes and 93,048 tonnes.

For wheat, US export sales are expected at 250,000-450,000 tonnes for old crop and 25,000-200,000 tonnes for new, compared with figures last time of 391,564 tonnes and 40,020 tonnes respectively.

Weak crush

For soybeans, US export sales are forecast at 400,000-600,000 tonnes for old crop and up to 200,000 tonnes for 2017-18, compared with 485,505 tonnes and 29,600 tonnes respectively last time.

And US soybeans have certainly been trying to win attention through lower prices, which earlier in the week hit a five-month low of $9.92 a bushel.

Demand has been needed on a domestic as well as export score, with industry data from Nopa on Wednesday showing the US crush in Feburary at 142.7m bushels, well below expectations of 146.0m bushels.

"This was first month for the marketing year where monthly crush did not exceed last year's pace," said Benson Quinn Commodities.

'Need to be at or near record'

Further Nopa data showing a "build in soyoil stocks", despite the lower-than-expected crush, "was also disappointing".

US soyoil inventories as of the end of last month stood at 1.77bn pounds 42m pounds above market expectations, besides the figure of 1.655bn pounds at the end of January.

Benson Quinn Commodities added: "Crush rates for balance of year will need to be at or near record pace to reach forecast after the disappointing February numbers."

Still, helped by the falling dollar and the rise in its ag peers, soybean futures for May added 0.7% to $10.05 a bushel, regaining the psychologically-important $10.00-a-bushel mark, and looking for their first winning session in nine.

Soyoil fared even better, jumping 1.0% for May delivery to 32.55 cents a pound, helped too by a 2.3% surge to 2,803 ringgit a tonne in rival vegetable oil palm oil in Kuala Lumpur.

Besides the improvement in Malaysian exports, as Agrimoney.com flagged on Wednesday, there is also talk doing the rounds that production is still falling short of expectations too.

Auction slowdown

In New York, cotton for May extended its recovery, adding 0.6% to 78.53 cents a pound.

This after a 0.3% gain overnight in cotton futures on the Zhengzhou exchange in China, where auctions of huge stake stockpiles remain in focus particularly with a declining rate of take-up and prices, down to 72% and 14,710 yuan a tonne on Wednesday.

CBA's Tobin Gorey said: "The slowdown in in reserve sale rates this year makes us think China is now hitting up against a blend wall," ie the amount of high-quality imported cotton around to mix with the poor-quality stuff said to being sold from the state stockpiles.

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