PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 09:23 GMT, Thursday, 20th Apr 2017, by Mike Verdin
AM markets: oil price revival helps ags. Even palm oil gains

Ags, even palm oil and wheat, started broadly firm on Thursday, although whether they stay that way…

It was a help that oil prices staged some recovery, adding 0.7% to $53.30 a barrel for Brent cride.

This after a 3.6% drop in the last session on data from the US energy department showing gasoline inventories up 1.5m barrels in the week ending April 14.

Investors had expected the data to show a drop of 1.9m barrels.

Oil is a key influence for ag markets, thanks largely to the growth of the biofuels market, which sees largely proportions of the likes of the US corn crop and the Brazilian sugar cane harvest turned into energy, while vegetable oils are the basis of biodiesel.

Palm up

And palm oil, for instance, added 1.5% to 2,501 ringgit a tonne in Kuala Lumpur as of 09:15 UK time (03:15 Chicago time), looking to end a six-session losing streak which saw the vegetable oil in the last session set its weakest close in eight months.

Palm's revival came despite data from cargo surveyor ITS showing Malaysia's exports of the vegetable oil falling 1% month on month as of April 20.

That compared with a 15.2% increase as of April 15, while in the first 10 days of the month, prices were running 21% higher than in the same period of March.

However, it was some help to Kuala Lumpur values that palm oil in China, a big importer, futures for September settled 0.1% higher at 5,122 yuan a tonne – a small rise, but significant too in that it represented some recovery from the contract's weakest-ever close.

'Fears of frost damage'

It is also a help for palm oil markets that values of canola, an oil-heavy oilseed, and its relative rapeseed are receiving some support from wet conditions in Canada, the top exporter, which are raising some concerns over sowings.

In fact, the May canola contract was unchanged at Can$516.50 a tonne in early deals in Winnipeg, but after a 6.6% rebound so far this month which has taken the lot above its major moving averages – bar the 100-day, which sits at Can$517.00 a tonne.

There is also some concern in Europe over a setback from cold weather, with Agritel flagging "fears of damage linked to frost consequences on rapeseed crops", at a time when a "persisting water deficit in many regions" is provoking worries too.

"Spring crops experience delays in their vegetative development increased by malabsorption of the second application of nitrogen fertilizers," the consultancy added, although a factor more important for grains themselves than rapeseed, of which only a small proportion is spring sown in Europe.

Chinese tax cut

Back in Chicago, the firmness in oils spread to soyoil too, which added 0.3% to 31.67 cents a pound for May, extending its revival of the last session.

This in turn propped up soybeans themselves, which added 0.2% to $9.52 ½ a bushel, receiving support too from hopes that a reduction, from July 1, of 2 points to 11% on VAT on agricultural goods by top importer China will whet demand.

"If implemented today, the reduction would reduce the cost of imported corn, from the US, by $3.15 tonne and US soybeans by $7.00 a tonne, using our working calculations," said Terry Reilly at Chicago broker Futures International.

'Wetter-than-ideal conditions'

With corn only a limited Chinese import, the VAT change was not seen as having such a big impact on world prices of the grain.

That said, futures gained 0.4% to $3.63 a bushel for May delivery, continuing to receive a modicum of support from the wetness hampering the early stages of Midwest sowings of the grain.

"Weather forecasters say that US conditions are likely to remain wetter than ideal for the next week or so," said Tobin Gorey at Commonwealth Bank of Australia.

Joe Lardy at CHS Hedging said: "There is talk of a drying pattern but the weather models are not supporting this.

"Short-term temperatures are up across the eastern Corn Belt with precipitation above average across the entire Midwest throughout the next two weeks."

'Potential for short covering'

Corn's headway helped wheat too, which added 0.2% to $4.19 ¾ a bushel in Chicago for May, and 0.2% to $4.35 ½ a bushel for the better-traded July contract, reversing many of the losses of the last session.

Whether this can last…

"The potential for a rally in the wheat markets will remain tied to the potential for short covering," said Benson Quinn Commodities.

"On that front, the trade is going to make the market prove that it needs to rally," the broker said, adding that "given the current fundamental set-up", is ample world supplies, "that seems like a tall order".

'Sharp cold snap'

Still, there are some worries in the market, including the wetness in Canada and the northern US slowing spring wheat seedings.

That said, Minneapolis spring wheat futures, having outperformed, added a modest 0.1% to $5.45 ½ a bushel, struggling to set camp above their 100-day moving average at that level, and with the 50 day moving average $0.01 higher.

Furthermore, the premium of Minneapolis wheat to its Chicago peer is, at some $1.10 a bushel, looking elevated, with levels above $1.20 often proving hard to sustain.

There are the concerns in Europe too, as mentioned earlier by Agritel, which also said there were "growing" worries in Ukraine "over possible damages to grain crops due to the effects of a sharp cold snap with snow and frost.

"In many regions, the sowing campaign has been suspended."

Data later

Whatever, trade later may depend largely on weekly US export sales data, expected for wheat to come in at 250,000-450,000 tonnes for this season, and 10,000-300,000 tonnes for 2017-18.

CBA's Tobin Gorey added: "US wheat exports for season 2016 look likely to be, best case, 1m tonnes below the USDA's current forecasts unless there are chunky late sales."

For corn, old crop export sales are expected at 700,000-1.00m tonnes, and new crop at 100,000-300,000 tonnes.

For soybeans, sales for 2016-17 are forecast coming in at 300,000-500,000 tonnes, with new crop sales pegged at 100,000-300,000 tonnes.

The data will be important too for cotton, which in New York added 0.2% to 78.49 cents a pound for July, rising in line with its fellow row crops.

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