From the Trump bump to the Trump slump.
having hit a 14-year high of 103.82 against
a basket of currencies just before Donald Trump became US president, amid ideas
of reforms which would boost economic growth, extended its retreat on
Wednesday, falling below 97.5. (that represented a drop of 7% from the January high.)
That set fresh six-month lows. For the first time this week,
the dollar has traded lower than before Mr Trump was elected.
The good news for exporters of assets denominated in
dollars, such as many commodities, is that a weaker greenback makes such goods
more affordable, tending to bring upward pressure on prices.
Call this a Trump tailwind?
Certainly, for dollar-traded agricultural commodities, the prevailing
direction was upwards on Wednesday, with soft commodities proving best at
catching the breeze.
This despite a fall in the real even against a depreciating dollar, with the Brazilian
currency – so important for prices of the likes of coffee and sugar given the
South American country's pre-eminence in production and exports – apparently disfavoured
by a broader retreat from risk.
Raw sugar futures soared 2.6% to 16.30 cents a pound in New
York for July delivery, supported too by ideas of rains for cane-growing areas –
boding ill for harvest progress, and thereby processing rates and output of the
Furthermore, "ethanol parity" – when processing cane into
ethanol or sugar is equally remunerative for Brazilian mills, viewed as a price
floor for the sweetener - got more references, including in comments by
Separately, Sucden Financial said that "traders still seem
to be pointing to sub-15 cents as a floor, citing the ethanol parity, now
estimated at 14.50 cents a pound".
The broker also flagged bullish talk of "further imports
[by] India, despite several official statements discounting this".
"We feel, in short, that the market is up because it failed
to continue downwards and the selling pressure from the speculative community
seems to have abated."
Arabica vs robusta
Also in New York, arabica
coffee jumped 2.2% to 131.40 cents a pound for July delivery, amid
short-covering seen as encouraged by a series of factors, including the
upcoming "frost season" (if there are any), and the prospect later this week of
a key report from Conab on Brazilian coffee prospects.
Conab has a habit of conservative production forecasts
which, if deemed credible by the market, could support prices at a time when hedge
funds have a substantial net short in arabica futures and options.
Arabica coffee for once outperformed London-traded robusta coffee, which added 1.9% to
$1,997 a tonne for July, equating to about 90.70 cents a pound, so still
showing a historically small discount to arabica beans,
Indeed, this "still-relatively-low arbitrage, remains not
such an attractive factor for the many price sensitive roast and ground
roasters who have considered robusta coffees to be an opportunist discount
component, within their mostly arabica coffee blends", said merchant I&M
In grain markets, the price trend was positive too, although
hefty gains were less easy to come by, with investors still reluctant to take
on long bets given large world supplies, and with many burnt by the last
notable rally - in wheat earlier
this month, on US weather fears, but which fizzled out in a couple of days.
Oats managed strong
headway, ending up 3.3% at $2.35 ½ a bushel for July delivery, and closing back
above their 100-day moving average, recovering ground lost earlier this week on
rapid US sowings progress, and some improvement in crop condition too, as
revealed by USDA data.
But Chicago wheat managed a more modest of 1.1% gain to $4.27
a bushel for July, despite a host of factors ranged in favour of the grain,
including a wet US Plains forecast.
"The overnight shift in the weather forecast points to
increased precipitation for the southern Plains through late May and possibly
extending into early June," said Benson Quinn Commodities.
'Moisture that isn't
While moisture is generally beneficial for crops, the large
extent of rains hitting crops is raising fears of spreading disease.
"This is moisture that isn't needed," said Benson Quinn Commodities.
"A continued wet outlook in the hard red winter wheat area
through the end of the month is leading to most of the wheat buying, primarily
short covering," said Darrell Holaday at Country Futures.
"The concern would be heightened if the wet conditions
persist into the first week of June."
Early harvest results
Furthermore, the precipitation is coming at a time when
harvest is just beginning, and rain is a definite worry, provoking concerns
over quality damage besides slowing combines.
Early results from Oklahoma would appear reasonable.
"Test weights have been averaging 63-65 pounds a bushels,
with yields ranging from the low 20s to mid-40s bushels per acre," said the Oklahoma
Wheat Commission. (In 2016, the average yield for the state was 39.0 bushels
per acre – but that was an unusually strong year.)
Still, "producers across the state are hoping the predicted
storms this week do not damage or pro-long the beginning of harvest".
Meanwhile, on the demand side, a tender from Egypt's Gasc
grain authority highlighted just how competitive US wheat is, with hard red
winter wheat offered as low as $185.50 a tonne (and bought at $185.40 a tonne).
Black Sea supplies, typically renowned for their
competitiveness, were not offered below $197 a tonne.
Gasc bought its first US wheat cargos at tender in more than
Nonetheless, Kansas City-traded hard red winter managed a
rise of 0.9% to $4.26 ½ a bushel, a discount to Chicago soft red winter wheat.
is a concern'
For corn, there
was some support on both sides of the balance sheet too, with US production
ideas overshadowed somewhat by heavy rains, now turning their attention on the
western Corn Belt.
"Heavy precipitation is a concern in the western Corn Belt...
and upcoming weather models show more rain to come," said CHS Hedging, although
drier conditions in the eastern Corn Belt are proving more welcome for farmers,
after early weather setbacks.
"Abundant rains in western areas will stall corn and soybean
planting; planting should progress well in eastern areas," said weather service
That said, much of what is being seeded in the eastern Corn
Belt is being sown for a second time.
"There is a lot of replant going on in Illinois and Indiana,"
said Darrell Holaday at Country Futures.
Poor start in Illinois
Indeed, if anyone doubts the potential for rains not always
to be favourable for crops, they should glance at the crop rating for Illinois
corn, as unveiled by a state USDA report on Monday.
At 42% of the crop rated good or excellent, that represented
a fall of 26 points in the reading year on year.
"Further, this would be the lowest initial rating for Illinois
since 1992 and the third lowest of the last 30-years," said Tregg Cronin at
Halo Commodity Company.
Meanwhile, on the demand side, US ethanol data for last week came in at 1.03m barrels a day up 21,000
barrels a day, although a rise too in stocks of 395,000 barrels week on week to
23.41m barrels raised worries about
actual demand for the biofuel.
Corn futures for July rose 1.1% to $3.71 ½ a bushel.
US vs Brazilian
underperformed this time, as might actually be somewhat predictable, given the extent
of talk of spreading between the oilseed and grains (often in the form of long
soy- short wheat bets, for instance).
The July contract shed 0.1% to $9.75 ¾ a bushel.
The weaker real was not so helpful, in raising the prospect
of Brazilian farmer selling resurfacing, after a hold-off seen as a big help to
Actually, "US export soybean offers are on par or cheaper
than Brazilian stem," said Halo's Tregg Cronin, noting a dynamic unusual in
that, with the US harvest long past, and Brazil's still ongoing, it is the
South American country which could be pricing itself into the market at this
time of year.
"The fact US soybeans are still competitive for summer slots
is a morale victory," Mr Cronin said.
There was also mention of heavy rains due in Argentina,
potentially hampering the last stages of harvest (now roughly 70% complete), and
hurting the quality of crop still in the field.