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AM markets: cotton hits contract highs, dodging ag malaise
By Mike Verdin - Published 12/05/2017

Agricultural commodity contracts, bar cotton, found waking up a bit difficult on Friday.

Even palm oil - which found a clear direction (upwards) in the last session, on a smaller-than-expected Malaysian stocks number – struggled to maintain much enthusiasm.

Kuala Lumpur July contract stood down all of 0.1% at 2,669 ringgit a tonne as of 08:00 UK time (02:00 Chicago time) amid a sense of tranquillity evident in some other markets too.

The dollar eased 0.1% against a basket of currencies, while Brent crude nudged 0.1% higher to $50.80 a barrel.

This after the S&P 500 share index overnight closed 0.2% lower, in what counted as its Street's biggest one-day fall in three weeks.

Indeed, the Vix index – the share market's so-called "gauge of fear" – this week fell below 10 for the first time in a decade.

'Kansas story is not over yet'

What a difference for ag investors from, say, the stormy conditions of early last week, after snow, cold and high winds were feared to have cut US winter wheat production prospects by, according to some observers, up to 4m tonnes.

The point being that even as markets snoozed, commentators cautioned that volatility may only be around the corner again, including in wheat, for which the US cold damage story is not over, even after last week's Wheat Quality Council tour of Kansas, the top producing state, came in with an above-average yield estimate.

"The Kansas story is not over yet," said Peter McMeekin, Nidera Australia origination manager

"In last year's Wheat Quality Council crop tour, the scouts visited 655 paddocks across the state, before reporting their yield estimate.

"This year they were only able to visit 469 paddocks before reporting to the market.

"Many stops were not made because the wheat was still under snow, plants were laid down flat in some areas and conditions simply did not allow an adequate inspection."

Besides, there is plenty of talk of wet conditions encouraging disease, a threat ahead to yield prospects.

'Fat market swings'

Mr McMeekin added that "we have the critical, spring maturity phase, of the northern hemisphere winter crop, coinciding with the south American summer crop harvest, the US and European spring and summer crop planting season, and the southern hemisphere winter crop planting programme.

"I am confident that there will be many more stories and events over the next few months that will culminate in fat market swings."

At UK grain trader Gleadell, David Sheppard - referring to the US Department of Agriculture's first full crop estimates for 2017-18, released on Wednesday - said that while "on paper, wheat stocks still look burdensome… tradable stocks actually show a decline".

Ie less wheat is in the hands of exporters, whose stocks levels are particularly important to market pricing.

 "Further talk of losses will attract major bouts of short-covering."

'Prices will rise'

Indeed, at Commonwealth Bank of Australia, Tobin Gorey said: "We expect prices will rise somewhat later in the 2017 season. 

"But, there is still a lot of wheat to move so any price rise in the interim is likely to quickly find sellers."

The opposing forces were pretty well balanced in early deals, when Chicago wheat futures for July stood flat at $4.33 ¾ a bushel.

Minneapolis spring wheat fared worse, in easing 0.2% to $5.47 ¼ a bushel, amid ideas of an acceleration in US and Canadian seedings of the grain.

"Weather in the northern Plains will be warm and mostly clear into early next week," said Benson Quinn Commodities.

Overnight, farm officials in Saskatchewan said that overall spring crop sowings were 11% completed as of Monday, up 10 points week on week, if still behind the average of 16%.

'Near-ideal outlook'

Back in Chicago, corn futures eased 0.1% to $3.68 ¾ a bushel, bowing a little under pressure of expectations of decent weather for Midwest sowings.

"The central Midwest is expected to be drier for the next 10 days and temperatures will be warming up to help dry out saturated soils and get farmers back in the fields," Benson Quinn Commodities said.

"The current outlook is near ideal for corn and soybean planting for most of the Corn Belt and as long as remains so should keep sell pressure on the corn and bean.

"Many locations are forecast for 80+ degree Fahrenheit temperatures. This should allow for wet areas to dry out and warm soil temperature for fast emergence."

Soy pressure

Soybeans proved relatively racy in shedding 0.4% to $9.62 ½ a bushel for July, again pressed by the hopes for rapid US seedings progress, besides fears for strong South American harvests (with Argentina's crop receiving a series of upgrades) implying enhanced competition on export markets.

That said, Joe Lardy, at CHS Hedging, said that the "soybean market has been very lifeless lately.

"The market is still struggling with the weather wondering if we are going to see more or less bean acreage." (Early spring wetness, in hampering corn sowings, can mean some area is switched to soybeans, which have a slightly later planting window.)

"So it appears that the market is very content to stay rangebound until a trend emerges."

That said, the decline did take the contract below its 10-day moving average, which may prove significant to some chart followers.

Export surge

Where volatility remained at home was in cotton, which for July added a further 2.4% to its 3.5% gains of the last session, talking the contract to 81.10 cents a pound, a contract high.

The gain followed well-received data on Thursday for US export sales and, in particular, actual shipments of cotton last week, of 164,000 running bales and 429,000 running bales respectively.

"Cumulative sales and shipment data for 2016-17 suggest that final US exports for the current marketing year exhibit the potential to be 14.65m+ 480-pound bales," said Louis Rose at Rose Commodity Group.

The USDA currently forecasts them at 14.5m bales.

Huge premium

However, the outperformance again found a poor echo in later contracts, with December cotton adding just 0.1% to 72.57 cents a pound.

CBA's Tobin Gorey noted how in the last session the December contract "tried to join the party but was, with no invitation, rebuffed at the door.

"The US cotton market, based on the USDA's forecasts for 2017-18, is likely to be comfortably supplied by December."

He also flagged a multi-year high for the premium of July futures over December ones, at more than 8 cents.

© Agrimoney 2017