What a difference a few hours can make.
“Investors favour equities at record highs to the grains at multi-year lows,” bemoaned one US broker overnight.
Not so in late deals on Friday, when grain futures rose, fulfilling ideas that month beginnings are an upbeat period for ag markets, in line with the “new month, new money” adage.
Share markets, meanwhile, struggled for once, with the Dow Jones Industrial Average slipping 0.4%, after Michael Flynn, the US ex-national security adviser head, was revealed to have lied to the FBI regarding its Russia investigation, prompting a revival of worries that President Donald Trump may be impeached.
“Also, we’re in the middle of the tax vote in the US Senate - will it happen or not?” said Mike Zuzolo at Global Commodity Analytics.
“Bigger yet is fresh news about potential for a new missile launch by North Korea,” Mr Zuzolo said, terming Friday a “very heavy news day, with sharp volatility and price swings” in a number of markets.
“All of this has the dollar sharply lower with equities,” although in fact the greenback recovered somewhat in late deals to stand down 0.3% against a basket of currencies.
‘Talk of a high pressure ridge’
Still, that was something of a boost to the likes of Chicago grain futures, in making dollar-denominated assets more affordable.
And there were other reasons too that some investors might see grains as a bargain hunting opportunity.
Terry Reilly at Futures International underlined that “talk of a high pressure ridge building in Argentina next week, after welcome rain this weekend, is stirring up market weather watchers.
“Net drying in Argentina delayed soybean planting progress last week.”
Soyoil vs soymeal
Indeed, this is seen as a particularly important factor for the soybean market, as well as for the soy processing products, of which Argentina is the top exporter.
Chicago soybean futures for January stood up 0.8% at $9.93 ¾ a bushel in Chicago in late deals, helped by a gain of 1.0% to $329.60 a short ton in values of January soymeal.
Soymeal’s gain looked to come in part at the expense of soyoil, which dropped 0.2% to 32.77 cents a pound for January delivery, with soymeal-soyoil spreading a common bet.
This cut further soyoil’s share of the value of soybean processing products.
In fact, “nearby soyoil share is still near the lower end of a six-month trading range and could still appreciate back above 35% if US soymeal exports slow,” said Terry Reilly at Futures International.
Another spark could be monthly US Department of Agriculture US soybean crush data, due later.
US export order
Corn futures also felt a bit of early-month buoyancy, with the Chicago March contract up 0.8% at $3.58 ¾ a bushel, earlier encountering its 40-day moving average for the first time in three weeks.
The grain was helped by a sign of, much-needed, demand for US exports, with the USDA reporting the sale of 130,000 tonnes of US corn to an “unknown” importer.
But corn’s gains were not enough to keep up with wheat, which added 1.0% to $4.37 ½ a bushel in Chicago for March delivery.
And this despite continued talk over the extent of deliveries against the expiring December contract, a dynamic which some would see as a negative in indicating futures, and now, as an attractive place to sell compared with alternatives.
Still, not all looks quite as it first appears in this dynamic, with the extent of wheat deliveries puzzling many observers,
“When cash wheat markets were $0.20-0.30 a bushel over [futures] delivery values, why put out delivery wheat at option?” asked CHS Hedging.
At Halo Commodity Company, Tregg Cronin said: “You would have been hard pressed to find a bigger talker yesterday than the huge deliveries in Chicago wheat and corn to a lesser extent.
“The confusion came from the fact cash soft red winter wheat is trading above delivery equivalence by quite a margin, implying there should not have been any or very many deliveries at all.”
Many solutions to the puzzle are centred around quality factors, and whether indeed the comparison between cash and futures markets is a fair one.
“Word began to spread the wheat Anderson’s delivered, 10.0m bushels in total, was not milling quality due to low falling number,” Mr Cronin said.
“That in itself raises its own set of questions as the applicability of it being able to be used in the delivery process.”
More straightforward is the reaction to heavy delivies overnight against the Kansas City December hard red winter wheat contract.
After Thursday was “fairly quiet, with only 55 contracts delivered, last night there were 300 fresh registrations in Wichita which helped total deliveries push to 556 contracts,” Mr Cronin said.
However, hard red winter wheat “is the lone commodity with a strong commercial stopper, as Cargill stepped in for 526 of the 556 contracts which should leave very few outstanding after today”.
Also on the side of wheat bulls is the turn wetter in Australia’s weather forecast, just as farmers in many areas are still struggling to get in.
Some 4m tonnes of grain will be affected, according to Australian Crop Forecasters, although it is not clear whether that includes expected damage from a fresh wave of rains.
“Cash traders are buzzing about the monster storm about to hit Australia which could threaten an already drought-reduced crop with quality-threatening rains,” Mr Cronin said, noting official forecasts that parts of Victoria and New South Wales could see up to 250mm of rain.
“There is the potential some spots could see as much as 2.00 inches an hour with loss estimates anywhere from 1.0m tonne to 3m-4m tonnes.”
Still, east coast wheat futures for January actually fell by Aus$5.00 to Aus$273.00 a tonne in Sydney overnight.
The strength spread to some soft commodities too, with New York cotton futures for March edging 0.2% higher to 72.98 cents a pound,
This after a 6.5% gain in November, the largest monthly gain for a benchmark contract since July 2016, with gains attributed to factors including fears over a pest threat to India’s crop, quality worries over US cotton, which has seen a strong pace of export orders too (if not of actual exports).
And arabica coffee for March traded up 0.9% at 128.50 cent a pound in late deals, reversing some of it losses of the last session, which producers’ group CNC attributed to “profit-taking” on late November gains.
The stronger Brazilian real helped, in boosting the value of assets in which teh South American country is a key player.
Meanwhile, Brazilian coffee exports last month were pegged by the trade ministry at 2.70m bags, up 60,000 bags from October, but below a year-ago figure of 3.0m bags, and maintaining somewhat downbeat performance.