Wheat, coffee, cotton futures manage firm end to poor month
By - Published 31/07/2015

Commodities rounded off a negative month with a negative close, soybeans included, after a cancellation by China of an order of the oilseed from the US touched a raw nerve.

Any hope of soybean futures building on early resilience was quashed when the US Department of Agriculture announced that Chinese buyers had ditched a 200,000-tonne order for US soybeans for 2014-15 delivery.

The announcement quashed the optimism that had emerged on Thursday with some better weekly US export sales data, showing 416,700 tonnes for soybeans for 2014-15, including 300,000 tonnes sold to China, and 899,100 tonnes forward sales for next season.

"Soybean sales came in very strong this week," Joe Lardy at CHS Hedging said 24 hours ago, noting that old crop sales "were the biggest in 14 weeks, since April 23", taking total commitments for the season 3% above the level the USDA has forecast.

"New crop sales were the second largest of the marketing year," he added.

'Made no sense'

However, after the cancellation, sentiment was more muted.

In fact, Darrell Holaday at Country Futures said that the cancellation was merely "fixing the error in the export sales report yesterday.

"It made no sense that China would have bought soybeans for August delivery from the US," he said.

"Their interest is new crop and that is limited."

South America vs US

Comments from Soren Schroder, the chief executive of Bunge, underlined that China has "built inventories" of soybeans thanks to heavy purchases from South America.

"We had a very, very strong flow of soybeans from South America, from Brazil in particular, during April, May and June," he told investors.

Thanks to the Chinese stocks, the "early part of the US export season will be a little slower than it was last year", he added, hardly a positive for futures.

"Soybeans might find it difficult to find support as Chinese cancellations more than likely cap prices for the day," Benson Quinn Commodities said.

And indeed so it proved, with soybean futures for August falling 1.1% to $9.80 a bushel, while the better-traded November lot fell by 1.1% to $9.40 a bushel.

'Weather leans negative'

An improvement in the US weather outlook was little help either, nor indeed to corn.

"Weather leans negative" for prices, Richard Feltes at RJ O'Brien said noting that next week was "looking cooler and wetter for the Midwest", a positive for row crops.

OK, a "dry pocket in north east Iowa, south west Wisconsin and north east Illinois is unlikely to see weekend relief", he added.

But corn futures ended lower too, although less so, falling by 0.4% to $3.71 a bushel for the September contract, and by 0.5% to $3.81 a bushel for the best-traded December lot.

'Spooked some customers'

Corn gained some plaudits for a 108,000-tonne sale of US supplies to Mexico, split between old and new crop.

Still, on the negative side, the Buenos Aires grains exchange pegged Argentina's corn crop at 26m tonnes, 1m tonnes above the USDA forecast, given better-than-expected results from the harvest, which is 79% complete.

Furthermore, the International Grains Council issued a caution on potential changes to Chinese corn subsidy policy, which could have a huge impact on corn and other markets.

And overall sentiment on US exports on corn remains downbeat too.

"We will likely look back and see that the rally in corn -$1 a bushel in late June and into mid-July - was ill timed from a US export angle," Mr  Holaday said.

"It spooked some traditional US customers to South America as they had their corn harvested and were offering much cheaper values.

"Now that price has retreated they have their orders filled through much of the fourth quarter out of Brazil and Argentina."

Wheat finds firmness

Wheat did better on the day, adding 0.4% to $4.99 a bushel for September delivery, helped too by its own US export success.

The USDA unveiled the sale to "unknown" of 126,900 tonnes of US wheat, spread between hard red winter, white and hard red spring varieties.

Still, it has to be noted that the contract is down 19% for the month, much worse than the 11.8% drop experienced by the average commodity, as measured by the CRB index.

Chicago wheat has been weighed by factors including the retreat somewhat of drought concerns in Canada, as highlighted by Saskatchewan data overnight, and Australia, besides by the lack of competitiveness of US supplies with those from other exporters such as Russia.

'Hot and dry conditions'

Among soft commodities, cotton gained too, getting over a weak start which dragged the December contract to a three-month low of 63.27 cents a pound, to close 64.21 cents a pound, a gain of 1.0% on the day (although down 5.4% for the month).

 The Delta, one place where the US weather outlook is less than idea, is a major cotton-growing area.

"Weather forecasters continue to predict hot and dry conditions for cotton crops in the US Delta," said Tobin Gorey at Commonwealth Bank of Australia.

In Texas, the top cotton-growing state, "crops too are now sitting in drier soils to with, forecasters predict, not a lot of rain on the horizon".

Real tumbles

However, raw sugar for October fell by 1.2% to 11.14 cents a pound, undermined by 1.6% drop in the real against the dollar.

Weakness in the Brazilian currency undermines prices, in dollar terms, of assets in which Brazil is a big player.

And Societe Generale added a negative note for sugar, and coffee too, lowering forecasts for the real and flagging the negative pull on both ags from this month's broader commodities sell-off.

'Unable to escape this dynamic'

"Global oversupply in crude oil and copper, and a rising dollar reducing demand for gold as an inflation hedge, has sent commodities plummeting in recent weeks," SocGen said.

"Both sugar and coffee have not been able to escape this dynamic as the trend for much of the year, and certainly in recent days, has been to move less independently against the commodity space.

"While there are supply and demand fundamental reasons for the downtrend in sugar and coffee prices, this pressure is exacerbated by the weakness in both the real and the general commodities space."

Still, New York arabica coffee managed a 0.3% increase to 125.25 cents a pound, for September delivery, nonetheless, helped by concerns over Brazil's harvest raised by the CNC producers' group.

The contract was down a bit over 5% for the month.

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