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PM markets: downbeat ag storybook returns bears to limelight

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The hurricanes keep on coming.

"For the first time since 2010, there are three active hurricanes in the Atlantic basin at the same time," weather service MDA noted.

Besides Irma - whose course looks to have settled with a brief landfall around Miami, Florida, before crossing a corner of the Atlantic to reach Southern Carolina – there is Jose out in the Atlantic, and Katia in the west of the Gulf of Mexico.

Still, it is Irma which is the big threat to agriculture (with Jose currently seen staying well out in the Atlantic, and Katia heading into Mexico, and being less powerful storms too).

"The crops at most risk from Irma are




cane in Florida and


in the South East," said MDA, while underlining that the exact tract of the hurricane will be key to determining how much damage is caused, and to what.

Turning a little west of the currently predicted course would mean more damage to citrus crops, while a stronger iteration than currently foreseen in the South East would pose more of a threat to cotton.

Three storm-hit years

In fact, the Carolinas, especially Southern Carolina, "are expected to receive heavy rainfall in association with the storm's arrival over US soil", said Louis Rose at Rose Commodity Group.

"Hence, producers along the eastern seaboard are looking at the potential for three consecutive years of significant damage at the hands of an active tropical season," with cotton a particularly important crop in this area.

While New York cotton futures for December eased on Thursday, with the prospect of decelerating wind speeds as Irma makes its second landfall cutting the crop damage threat a bit, the removal of risk premium was only partial.

December cotton closed down 0.3% at 74.27 cents a pound, still up 11% from a mid-August low, before even Hurricane Harvey had entered market consciousness.

Buy the rumour, sell the fact

In fact,

raw sugar

fared much worse in New York, dropping 1.8% to 14.03 cents a pound.

Explanations for the decline - despite the damage that Irma has wrought on Caribbean plantations - included "buy the rumour, sell the fact" thinking, with India's formal announcement of consent to 300,000 tonnes of imports of raw sugar at southern ports at a lowered duty rate of 25% provoking a bit of a market yawn.

There also remains talk of producers being keen to sell at current levels, which remain above the psychologically-important 14 cents-a-pound mark.

Chinese selldown?

However, a big factor too seems to have been a late retreat by sugar futures on China's Zhengzhou exchange, amid talk that a release from state inventories is in the offing.

"Rumours are circulating the government maybe about to release the national reserve," said Tom Kujawa at Sucden Financial.

"Chatting around the market it seems should this actually happen consensus is mixed on how it would impact the [New York contract] short term with bearish, bullish and neutral arguments forwarded."

However, one obvious interpretation is that China's, large, sugar imports would be curbed for a while, implying lower prices on international markets.

(Similar thinking kept New York cotton prices weak a couple of years ago, before well-received Chinese state auctions actually spurred ideas of better-than-expected demand.)

'Not a call to action'

Grains showed declines too, little helped by a United Nations Food and Agriculture Organization hike to its forecast for world production, and inventories, in 2017-18, reminding investors that world supplies remain ample whatever, for example, the debate over the US



This topic returned to the fore too with results of a Bloomberg survey of analysts showing expectations that the US Department of Agriculture will, in next week's Wasde crop report, cut its forecast for the domestic corn yield this year by 2.4 bushels per acre to 165.5 bushels per acre.

That figure is "by no means a call to action for the bulls if it is realised", said Richard Feltes at RJ O'Brien, coming up with the same conclusion for the forecast for the Wasde cutting the estimate for US


stocks at the close of 2017-18 by 36m bushels, to 439m bushels.

Near-record ethanol output

Certainly, Chicago


futures for December closed down 1.7% at $3.61 a bushel, failing earlier in an effort to break above their 20-day moving average, but not dropping below their 10-day line either.

The decline came despite some strong US ethanol production data for last week, up 18,000 barrels a day from the previous week to 1.060m barrels a day.

That was the second highest figure on record, marginally behind the high of 1.061m barrels a day set in the last week of January.

Ethanol stocks dropped 187,000 barrels to 21.116m barrels despite the output rise.

Still, Terry Reilly at Futures International was tempered in his enthusiasm for the report, calling it "slightly supportive for corn futures".

'Sharp rally'


futures fared a little better, shedding 0.2% to $9.68 ¾ a bushel for November delivery, as the more eastward course of Irma dented ideas of it bringing rains to the Midwest, much of which is deemed a little drier than ideal for finishing soybean crops.

In Paris, rival oilseed


fared significantly worse, dropping 1.3% to a four-week low of E369.75 a tonne for November, as a long-awaited European Commission announcement on tariffs on EU imports of Argentine biodiesel indeed suggested a sharp drop.

The commission agreed by September 28 to cut the tariff to 4.5-8.1%, from 22-25.7%, so falling in line with a World Trade Organization ruling last year on the levy, which was implemented over claims that Argentina was unfairly subsidising its exports of biodiesel (which is made from vegetable oils).

A stronger euro also dented rapeseed values, with CRM AgriCommodities noting a "sharp rally in the euro, which traded above $1.20 after European Central Bank economists raised their 2017 growth forecast for the eurozone from 1.9% in June to 2.2%".

The firmer currency "is likely to continue impacting negatively the pace of EU exports for the foreseeable future as it makes the EU origin less competitive".

Export weakness

That goes for the


market too, and Paris wheat futures for December closed down 0.9% at E160.25 a tonne, dropping back below their 10-day and 20-day moving averages.

Weekly EU soft wheat exports data were indeed hardly encouraging, coming in at 226,000 tonnes, taking the total shipments so far in 2017-18 (starting in July) to 2.7m tonnes, a drop of 48% year on year.



exports, meanwhile, have reached 543,000 tonnes, down 54% year on year - while corn imports are more than 50% higher at 2.5m tonnes, also a reflection of a firmer euro (besides downgraded domestic production prospects).

Spring springs

At least, for wheat bulls, the


added 0.8% against the dollar, so curbing the export competitiveness of Russia's huge crop.

Still, Chicago,

winter wheat

futures for December tumbled 1.9% to $4.37 ¼ a bushel anyway, in selling blamed largely on profit-taking, and encouraged by the UN hike to its forecast for world wheat production and inventories.

Also weighing on Chicago futures was spreading between the market and Minneapolis, where spring wheat for December gained 0.8% to $6.49 ¾ a bushel.

Besides being helped by ideas that the protein premium of spring wheat over winter had got too small, given the relative squeeze on quality supplies, spring crop values have also been supported by a stronger

Canadian dollar

, after the country's surprise interest rate rise.

The loonie has gained 2% against the US dollar in two days, to hit its strongest since May 2015.

By Mike Verdin

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