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PM markets: rain divides coffee beans. Soybean futures soar

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It isn't just in Brazil that rains are being closely followed by coffee investors, but in Vietnam too.

And with opposite effect on pricing.

New York-traded

arabica coffee

futures for December eased 0.4% to 126.35 cents a pound, as the revived hopes for Brazilian rains to boost flowering, as reported on Wednesday, extended to Thursday too.

"While this week is dry and it is forecasted that most districts might remain so until the first half of next week, the meteorological forecast are for rain for the rest of the month," said merchant I&M Smith, flagging "reports of massive flowerings over most of the main arabica coffee districts".

Price gap

However, talk of rains in Vietnam, the top


coffee growing country, only encouraged buying of London rousta bean futures, in potentially speaking of a delayed harvest.

This when, as I&M Smith said, exporters have "mostly only the much-depleted stocks from the past crop, to fulfil their October and November robusta coffee forward sale commitments".

London robusta coffee futures for November added 1.1% to $1,997 a tonne.

This reversed some of the enhanced discount of robusta beans to arabica coffee seen in September, when average London values dropped 5.5% month on month and New York ones 1.6%, as noted separately by the International Coffee Organization.

"The average arbitrage in September, as measured on the New York and London futures markets, increased further by 7% to 46.26 cents per pound," the ICO said.

Soaring oats

Still, focus on ags on Thursday was on the grains, and


, after the US Department of Agriculture unveiled its latest monthly Wasde crop report, which did not all go to plan.

US soy forecasts 2017-18, change on previous and (on market estimates)

Harvested area: 89.471m acres, +740,000 acres, (+454,000 acres)

Yield: 49.5 bushels per acre, -0.4 bushels per acre, (-0.5 bushels per acre)

Production: 4.431bn bushels, unchanged, (-16m bushels)

Year-end stocks: 430m bushels, -45m bushels, (-17m bushels)

World year-end stocks: 96.05m tonnes, -1.48m tonnes, (-430,000 tonnes)

Source: USDA, Reuters,


proved a major gainer, soaring 3.6% to $2.61 ¾ a bushel in Chicago for December delivery, a two-month closing high, after the USDA, factoring in a lower harvest estimate, cut its forecast for domestic stocks at the close of 2017-18 to 30m bushels (431,000 tonnes).

Apart from the 359,000-tonne inventory figure recorded four years ago, that would be the lowest on data going back to 1960.

But eyes were more on the row crops, and in particular


, after the USDA trimmed its forecast for the domestic yield of the oilseed, rather than raising it as investors had expected.

'Surge in buying by funds'

The result is hardly a shortage of the oilseed.

US corn forecasts 2017-18, change on previous and (on market estimates)

Harvested area: 83.119m acres, -377,000 acres, (-412,000 acres)

Yield: 171.8 bushels per acre, +1.9 bushels per acre, (+1.7 bushels per acre)

Production: 14.280bn bushels, +96m bushels, (+76m bushels)

Year-end stocks: 2.340bn bushels, +5m bushels, (+51m bushels)

World year-end stocks: 200.96m tonnes, -1.51m tonnes, (-950,000 tonnes)

Sources: USDA, Reuters,

But it spoke of a less ample surplus at a time when, with harvest well progressed, many investors were talking anyway of a seasonal price low in soybeans, and corn, be close or past.

The "unexpected 0.4 bushels-per-acre drop in the US soybean yield estimate, along with positive seasonal forces, triggers a surge in soybean buying by funds that were already building a modest long into today's report", said Richard Feltes at Chicago broker RJ O'Brien.

'Not really very friendly'

Darrell Holaday at Country Futures said that in fact "the rally in soybeans off the report is more of seasonal buy by funds" than anything to do with the yield downgrade.

"They were looking for a price break to buy off of the report" he said, adding that the Wasde "numbers are not really very friendly" to prices.

Whatever, soybean futures for November closed up 2.9% at $9.92 a bushel, their highest finish since late July.

The contract also made only its second finish since then above its 200-day moving average.

Mr Feltes added: "Look for the soy market to add risk premium until or unless South American weather improves."

'Production didn't rise much'

The gains helped fellow row crop


add 0.8% to $3.49 a bushel for December delivery even though the Wasde was not quite so positive for the grain.

Wheat stocks estimates, end 2017-18, change on previous and (on market forecast)

US: 960m bushels, +27m bushels, (+14m bushels)

World: 268.13m tonnes, +4.99m tonnes, (+5.33m tonnes)

Sources: USDA, Reuters,

"Even with a big yield increase in US corn, US production didn't rise much," Mike Zuzolo at Global Commodity Analytics said, flagging to a "1.5m-tonne reduction in world corn ending stocks".

'Wheat to lose to corn'

In fact, it was wheat which emerged most bearishly out of the Wasde, with the USDA making a bigger-than-expected upgrade to its estimate for domestic inventories at the close of 2017-18, thanks to a weaker feed demand figure, and hiking its idea of record world stocks.

"USDA shoved another 5m tonnes on top of an already-huge world wheat ending stocks number - pushing the total now to 268.13m tones for 2017-18," Mr Zuzolo said.

In price terms, "I'd expect the wheat to lose to corn in the coming days on the spread - possibly going all the way back down toward its $0.66-0.75 support level".

In fact, Chicago wheat futures for December dropped 0.6% to $4.33 ¼ a bushel, losing nearly $0.06 of premium to December corn, cutting the advantage to $0.84 ¼ a bushel.

Cotton drops

Back in New York,


futures for December, having initially pared gains on the Wasde, flagged towards the end of the session, closing down 1.3% at 67.86 cents a pound.

While the USDA cut its estimate for US production this year by 640,000 bales to account for hurricane damage to crops, the impact was largely offset by a reduction in the export forecast for 2017-18.

The US carryout stocks forecast was cut by a modest 200,000 bales to 5.80m bales, a touch higher than the market had expected.

Still, on the more positive side for prices, the USDA also flagged the rumours of fresh Chinese buying on international markets, talk which has been doing the rounds of late.

By Mike Verdin

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