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|Evening markets: wheat regains poise. But coffee, sugar drop
By Agrimoney.com - Published 14/03/2014
As you were.
If calmer voices over the Ukraine crisis prevailed in agricultural commodity markets in the last session, prompting the removal of some risk premium from grain prices, most of the losses were restored in this one.
The prospect of a poll on Sunday on Crimean secession from the Ukraine to join Russia - a ballot Moscow said on Friday it would respect, but the US said it would not – was one factor stirring bullish spirit.
After all, the betting is the Crimea will secede, and the European Union and US will end up imposing some kind of sanctions on Russia, enlarging the question mark over grain shipments from that country too.
'Trade doesn't underestimate Putin'
"The vote this weekend in Crimea is a foregone conclusion. They will vote to secede and be part of Russia," Darrell Holaday at Country Futures said.
"The question is what happens after that and that is what is supporting wheat values."
At RJ O'Brien, Richard Feltes said that "the Crimean referendum on Sunday, the severity of US/EU sanctions and the subsequent Russian response will be key variables to monitor in days ahead".
Benson Quinn Commodities said: "The longer term issues are related to how economic sanctions would affect Russian export capabilities and, of course, the globe's desire to purchase product from a region that could potentially be occupied.
"The vote is one thing, what happens after that could become critical. Since early August of 2010, the trade doesn't underestimate Putin," the broker said, a reference to the president's support for a grain export ban amid Russian drought, a factor which also sent prices soaring.
Add to that is the threat of further dryness for the southern Plains winter wheat belt, and prices closed firmly higher.
"Dry weather in the US Plains has also provided underlying support as rain forecasts for the hard red winter wheat areas remain scarce," CHS Hedging said.
US Commodities said "Rain chances for the hard red winter wheat areas remain thin and scattered."
Chicago wheat for May closed up 2.0% at 6.87 ¼ a bushel, in fact the higher close in four months, and keeping it well ahead of its main moving averages, which are, in the case of the 10-day and 20-day, moving up nicely through longer-dated lines.
'Export interest returned'
However, some of the last session's more negative tone hung around in Paris, where the May contract closed unchanged at E211.50 a tonne, and in London, where the May lot also ended unchanged, at £168.00 a tonne.
In fact, traders at UK co-operative Openfield were relatively upbeat on UK dynamics, if only thanks to a softening pound.
"As the euro gained strength this week, export interest returned to the UK and several cargoes were traded for January through to June shipment, with Holland being the best buyer.
While domestic users had "failed to buy much", that was due to "generally being a day late and a dollar short".
"UK feed wheat is back in the frame in the EU feed grains matrix," which may be just as well for buyers if Ukraine corn exports do indeed get disrupted.
Thinking of corn, that was not so enthusiastic over following wheat higher in Chicago, adding only 0.1% to \$4.86 a bushel for May delivery.
China, the source of much bad news for many markets at the moment, did its bit for bears by saying that it would likely to stockpile a record 60m tonnes of reserves in state inventories in 2013-14, thanks to poor demand.
The buying had reached 54.66m tonnes by March 10, the CNGOIC bureau said.
This only added some credence to talk that China may cancel some imports of US distiller's grains, a corn-based byproduct of ethanol manufacture used in feed (and in China, unlike in the US, as an alternative to corn itself rather than to soymeal).
Furthermore, the planting weather for corn is not looking all so bad, even if the snow cover highlighted by Allendale on Thursday remains an issue.
CHS Hedging said that "the southern US and Delta will see good rains, then a break in coverage and warmer temperatures should allow for plantings to get a good start," in an early sowing area.
Much of the central and lower portions of the US should "see more seasonal late-March temperatures for the rest of the month", WxRisk.com said on a longer term forecast.
Still, CHS also noted on the bullish side that the "ethanol markets continue to surge upward making new highs yesterday", and gaining 0.5% to \$2.467 a barrel in Chicago on Friday, for April delivery, the highest close but one for spot contract in six months.
'Overwhelming storage capacity'
China jitters of course bode ill for soybeans, with the country the top importer of the oilseed.
And, indeed, there is plenty of talk of analysts cutting estimates for China's 2013-14 purchases to below the 69m tonnes that the US Department of Agriculture is forecasting.
"Looming over the market is the continued chatter of China cancelling bean shipments as excess supplies sit at their ports," CHS said.
"Soymeal and crushing margins continue to push lower."
Jefferies Bache clocked "reports that China is cancelling large quantities of Brazilian/Argentine soybeans, as demand declines amid poor crush margins, and stocks along with impound cargos are overwhelming storage capacity".
The broker did note some more bullish talk too, over talk of losses to the Brazilian harvest thanks to heavy rains in the west (besides drought in the south and east).
Famato, the agriculture and livestock federation, has estimated production losses in Mato Grosso at 500,000 tonnes, after the top soybean-producing state received 30% more rainfall than normal.
Still, this may have been factored into a downgrade by the Conab crop bureau earlier this week.
Besides, there is talk too of huge soybean crop sowings, also underlined by Allendale forecasts on Thursday.
Soybeans for May closed down 0.6% at \$13.88 ½ a bushel, just below its 20-day moving average, for the first time since January.
For real losses, though, it was necessary to head to New York, and the coffee and sugar markets which have gained so much from the Brazil dryness concerns, with Minas Gerais, the top coffee-growing state, and cane focus Sao Paulo being outside the wet zone.
In fact, Fridays often witness profit-taking during a weather market, with the weekend potentially revealing a change in the forecast without investors being able to trade on it
(In fact, "mostly dry weather is in the forecast through the weekend", Jack Scoville at Price Futures, said.)
But there has been talk of increasing producer pressure at prices around \$2 a pound – nearly twice those at the start of the year.
Arabica coffee for May tumbled 3.7% to 198.40 cents a pound.
'Lack of demand'
In sugar, Mr Scoville flagged that while Brazil "might have less sugar, but there still seems to be enough in the market from Thailand, and the demand side does not seem strong.
"Demand news remains hard to find, with almost no big tenders noted in the press."
At Sucden Financial, Nick Penney said: "The worry has also been a lack of demand nearby especially of white sugar. It seems end users are eating into stocks rather than paying up for new sugar imports."
And Brazilian mills have begun crushing cane early, a factor which might longer-term tell on sugar output, with the crop not so productive at this time of year, but for now adding to supplies on the market.
It may also realise ideas of mills turning more cane into sugar rather than ethanol, with the sweetener the easy preference at current price relationships, according to Cepea.
Raw sugar for May tumbled 3.2% to 17.25 cents a pound.
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