If anyone still needed persuading of the influence of Brazil
on agricultural commodity markets, Thursday provided conclusive proof.
The focus of the world's political news moved from
Washington - and the claims that President Donald Trump asked former FBI
director James Comey in February to abandon a probe into former national
security adviser Michael Flynn south to Brazil, and claims that President
Michel Temer endorsed bribery payments.
The allegations against Mr Temer which are said to stem
from a tape handed over as part of a plea bargain by Batista brothers that head
meatpacking giant JBS, and who face their own probes sent the Brazilian real
down 8% against the dollar, to a six-month low.
Given Brazil's status as a major grower and exporter of a range
of agricultural commodities, the impact of the real's slump on ag prices was
dramatic and negative.
Coffee, sugar sink
In the soft commodities market, futures in coffee and sugar, of which Brazil is the biggest producer and exporter, tumbled,
with the weaker real cutting the value of the crops in dollar terms.
Raw sugar for
July stood 1.3% lower at 16.09 cents a pound in early afternoon deals in New York,
if retaking the psychologically important 16.00-cents a pound mark lost earlier
in a drop to 15.58 cents a pound.
Arabica coffee for
July plunged 2.9% to 130.50 cents a pound despite some downbeat forecasts by
Conab for the Brazilian harvest of the bean.
By contrast robusta coffee,
on which Conab was more positive in output terms, lost a relatively modest 0.8%
to $1,981 a tonne in London for July delivery.
But then Brazil is a relatively minor force in robusta
shipments, in which it ranks well behind Vietnam, while being top dog in
arabica meaning that the real's tumble stands to have a bigger effect on arabica
In grains markets, it was corn and, in particular, soybeans
which suffered worst, with the weaker real making Brazilian exports much more
competitive versus US ones.
"When the United States' largest soybean export competitor
sees their currency drop by 7%, an immediate competitive advantage is gained
with respect to pricing into major importers," said Tregg Cronin at Halo
"The plunging of the Brazilian real has made Brazilian soybeans
a cheaper and more attractive options on the world market," said Matt Gallik at
"This inversely has Chicago soybean futures weaker on the
idea of less export demand."
What's more, the tumble of the real, in putting upward
pressure on Brazilian prices of assets traded in dollars, looked like reversing
a trend which has been seen as supportive to Chicago prices, in making the
South American country's farmers more willing to sell.
Brazilian growers had - while the real was appreciating
earlier in the year, cutting the value in Brazilian terms of dollar-denominated
assets slowed sales to a crawl in the hope of higher local prices ahead.
The fallout from the real's tumble "may trigger stepped-up
farmer selling of their undersold 2017 soy crop", said Richard Feltes at RJ O'Brien.
"Chicago soybeans and corn have tumbled
as the weaker
Brazilian currency firms cash bean and corn values for Brazilian producers,
increasing hedge pressure," said Benson Quinn Commodities.
'High side of expectations'
Just how much they tumbled, well, corn futures for July
stood down 1.6% at $3.65 ½ a bushel for July delivery, back well below their
200-day moving average.
Soybean futures fared worse, plunging 2.8% to $9.38 Ό a
bushel for July, approaching a nine-month low for the contact.
Ironically, the Brazilian news swamped some more positive
news for US crop prices, in the form of decent weekly US export sales data.
"Weekly export sales for corn, soybeans and wheat were on high side of expectations
and were above pace needed to reach US Department of Agriculture forecasts" for
the full 2016-17, Benson Quinn Commodities said.
"Shipments resumed strongly again last week as well for all
'Heavy rains and
Meanwhile, US wetness continued to raise concerns over the
pace of spring sowings a support for corn prices at least, if less so for
soybeans given that, with a slightly later seeding window, they can pick up
area if farmers cannot get their corn planted in time.
"Heavy rains and cooler temperatures are staying in the
forecast for much of the Midwest over the next 2-3 days," said CHS Hedging's
"Weather forecasts are wet and cold for most through the
weekend," Benson Quinn Commodities said.
"Extended forecasts are also cool which should be supportive
if it weren't for the selling coming from the Brazilian farmer."
Halo's Tregg Cronin, thinking in particular of corn, said it
was "difficult to dismiss the current forecast and the additional damage that
could do to the recently planted crop.
"We don't need much of a dip in national yield to snug our
corn balance sheet right back up."
Wheat futures outperformed
in Chicago, in dipping a more modest 0.9% to $4.23 a bushel.
But then Brazil is not an exporter of the grain and is in
fact a structural importer, largely of hard wheat.
And, while feeling pressure from the drop in rival grain corn,
there is some supportive comment over the potential for wetness to cause damage
in a crop now being harvested in some areas.
"Abundant rains through early next week will increase
wetness and disease pressure again for wheat," said weather service MDA.