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PM markets: Brazil weather worries, US data doubts boost ags

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Prospects did not look strong for agricultural commodity prices, with a rising


adding to the US Department of Agriculture's apparently bearish US crop upgrades as reasons to sell.

Looking at


, for instance, Tregg Cronin at US broker Halo Commodity Company said it was "very difficult to find positives [for prices] with market at the moment, as balance sheets are oversupplied, export cash markets are weak and calendar spreads are trading in excess of 80% of full-financial carry"

But upward movement was the trend nonetheless, with many ags outperforming a 0.8% rise in commodities as whole, as measured by the



The idea, as indicated by FocusEconomics research, of upbeat analyst price estimates was some help, with futures in some contracts seen not far from levels at which many investors would see downside risk as very limited.

Still, there was fundamental cause for investors to cling to as well.

Weather worries

"What we do know is that China has stepped up


buying on breaks, that South American and US farmers are holding tight [on crop sales], that South American weather is worrisome and that market has had ample time to digest large US/global supplies," Richard Feltes at RJ O'Brien said.

South American weather is certainly growing as a theme as


and soybean plantings begin, Brazilian sugar cane harvesting continues, and


crops negotiate their weather-sensitive blossoming period.

While the US weather outlook looks a little "negative" for prices, with warmer temperatures helping late row crop development in the Midwest, where some areas will get helpful showers too, "foreign weather is positive," Mr Reilly said.

He flagged in particular excess rains in Argentina, and undue dryness in Australia, Brazil and Ukraine.

'Likely to remain dry'

The Brazilian dryness worries, for instance, helped further gains in

arabica coffee

futures, which soared 2.1% to 137.85 cents a pound in New York for December delivery, closing firmly about their 50-day and 100-day moving averages.

The contract is now up 5.5% this week.

"Brazil weather reports indicate that most of the main coffee districts have had a dry week and it is likely to remain the same for the coming week, with the exception of the possibility of some light rains due for the most westerly areas across Bahia and the fringes of Minas Gerais," said merchant I&M Smith.

"The warm dry days are contributing to some degree of speculation over the threat to the sustainability of the early flowering that came with the early rains during last month, over most of the main arabica coffee districts."

The worry is that without imminent moisture, fertilized flowers will abort rather than set and grow into coffee cherries for the 2018 harvest.

Sugar sweetens

Raw sugar

futures gained too, adding 2.2% to 14.33 cents a pound in New York for October delivery, even though dryness would be helpful for the Brazilian Centre South cane harvest.

That said, Unica data on Tuesday showed mills turning a lower proportion of cane into sugar, 46.95%,in the second half of August – down from a figure above 50% in the first half.

Jack Scoville at Price Futures noted that "the Indian harvest could be delayed due to wet conditions that would delay sugar cane harvesting".

Still, even after Wednesday's gains, futures remain within the trading range that has held them for the last three weeks, during which they have appeared reluctant to rise too far above 14.30 cents a pound – which coincides with many analysts' calculations of ethanol parity.

(Ie, the level which offers Centre South mills equal margin from turning cane into either sugar or ethanol.)

Calculation questions

On grain and oilseed markets,


were a notable winner, adding 1.2% to $9.60 ½ a bushel for November delivery, despite the USDA's surprise upgrade on Tuesday, in its monthly Wasde crop report, to its forecast for the US harvest yield of the oilseed.

Still, there are plenty of doubts that this yield will be achieved.

"Yield potential remains an issue for debate as many in the trade are not fully onboard with record soybean pod weights and the increase in the number of


ears," as used in the USDA yield calculations, said Benson Quinn Commodities.

CHS Hedging said that "it seems pod counts are lower, but the USDA has implied that record heavy pod weights are enough to make up for the lack of pod counts.

"Some traders question the pod weights due to the mostly low recorded rainfall in August."

'Difficult to believe'

Darrell Holaday at Country Futures said: "The bottom line is that when more people were able to spend more time with the numbers overnight, they realised that the pod weight was a critical component of the USDA yield projection.

"Many have a hard time believing that 2017 pod weights will be 4% above last year's record pod weight."

This is especially so amid talk, as Benson Quinn Commodities flagged, "of very early harvest results not measuring up to expectations," although the broker urged caution over taking too much notice of harvest reports "very early in the process".

Contrasting with soybeans, soyoil - which emerged from the Wasde with bullish credentials, with the USDA seeing cuts in biodiesel imports from Argentina and Indonesia meaning more domestic output – fell by 0.2% to 35.09 cents a pound for December delivery.


futures found headway difficult, but at least avoided losses, ending flat at $3.51 ½ a bushel for December.

While there are doubts about the USDA's corn yield estimate, they appear less entrenched than for soybeans.

Halo's Tregg Cronin, noting "the historical tendencies of the USDA" in its yield estimate revisions, said that "hoping for a 3-5 bushels-per-acre cut to national yields doesn't look like a solid proposition".

'Better correction to develop?'

Soft red winter wheat

futures, meanwhile, gained 0.5% to $4.43 ¼ a bushel in Chicago for December delivery, marginally underperforming Kansas City

hard red winter wheat

, which added 0.6% to $4.44 ¼ a bushel, regaining a premium.

"Generally speaking, the fundamental picture isn't all that supportive" for wheat futures, said Benson Quinn Commodities.

"However, the combination of the funds having added shorts in Chicago or reduced shorts in the hard wheat markets and a typical seasonal could allow a better correction to develop."

Russian export doubts

Halo's Tregg Cronin said that "wheat has performed well and would certainly lead one to believe there is more in the market than we currently have priced in.

"US wheat exports in 2017-18 are on the rise and could end up meaningfully higher than the USDA has them," he said, flagging the logistical challenges facing Russia's huge export programme.

The 32.5m tonnes of Russian wheat exports forecast in the Wasde "would be up 17% from last year's record and would be 53% larger than the five-year average.

"There are many who don't believe Russia can execute on such a programme while still maintaining exports of corn of barley in the neighbourhood of 10m tonnes."

Paris gains

Such thinking, and a boost from a weaker


, now back below $1.19, helped Paris wheat futures outperform, adding 1.1% 5o E161.25 a tonne for December delivery.

Indeed, France issued an upbeat wheat export forecast despite Russian competition, with shipments outside the EU seen more than doubling year on year to 10.2m tonnes.

By Mike Verdin

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