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Evening markets: weather scares see crop futures outperform

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The CRB commodities index, on its biggest losing streak since 1988, avoided – just - closing down for an 11th successive day.

It ended up at 289.14 points, up 0.2% on the last session's 19-month closing low.

And, with

copper

falling and

crude

mixed, the positive finish was in no small part down to agricultural commodities, which maintained the last session's record of defiance.

Indeed, it was hardly an easy day for risk assets, after joy at data showing German economic growth five times market expectations was wiped out by news that Greece faces a fresh election, after the last one failed to bring in a new government.

And a fresh election is seen as likely to favour politicians taking a more equivocal line over honouring the terms of the country's bailout package.

Juice pummelled again

Shares

lost early gains, closing lower in the major European exchanges, and standing lower in Wall Street in late deals.

The

dollar

soared 0.8% against a basket of currencies, a particular setback for dollar-denominated assets such as many commodities, making them less competitive as exports.

Still, agricultural commodities managed gains pretty much across the board – a notable exception, for a second session, being New York

orange juice

, which fell 2.2% to 114.00 cents a pound for July delivery, the lowest for a spot contract in more than two years.

Juice has now lost nearly half its value since hitting a record high in January, boosted by concerns that the discovery of residues of a fungicide banned in the US would limit imports Brazil, with the correction fuelled by a dearth of weather scares in Florida, the top US producing state.

'Everyone must be short'

Other ags had support from a mixture of technical and fundamental factors, as noted, for instance, in raw

sugar

.

On the fundamental side, "in the very short term, talk of continuing downgrades in forecasts for Centre South Brazil, and now fears of the effects a severe drought in North East Brazil might have later in the year may be the talking point in New York sugar week and lend some support to prices," Nick Penney at Sucden Financial said.

Technically, there is the historical pattern of rallies starting in May to factor in, against a background of a weak speculative net long position in the sweetener, giving scope for a run up in buying.

Indeed, one factor "giving some encouragement to the bulls is the fact that everyone, ourselves included, is talking the market lower, which means that almost everyone must be short!" Mr Penney said.

Raw

sugar

added 0.6% to 20.40 cents a pound for July, putting more distance between itself and the 20-month low set in the last session.

'Forced to compete'

Coffee

maintained its recovery too, with London robusta coffee for July adding 1.5% to $2,167 a tonne, continuing to close its discount to New York arabica coffee, which for July ended up 0.3% at 178.40 cents a pound.

At Phillip Futures, Lynette Tan noted that robustas in particular had been helped by chart buying, after the July lot moved last week above its 200-day moving average in essence for the first time.

Furthermore, European buyers have been "forced to compete with emerging markets for supplies after Indonesian roasters bought up more than expected of the Vietnamese crop", the world's biggest.

The discount of robusta coffee to arabicas, generally considered of higher quality, has narrowed to about 80 cents a pound, its lowest in nearly two years.

'Irreversible' damage?

And in Chicago, grains too had some technical factors in their favour, following heavy liquidation which had cost July

soybeans

, for instance, some $1 a bushel in May.

"Markets have become technically oversold on the recent bout of fund selling," Benson Quinn Commodities said, adding that they were looking for some spark "to inspire end-user buying".

The catalyst was fresh concerns over weather, both in the US and elsewhere, with a lack of rain in parts of the former Soviet Union gaining increasing comment, and touching a raw nerve following the 2010 drought.

FCStone's Mike O'Dea noted "comments out of Russia talking about 'irreversible' damage to some of the

wheat

crop", adding that "China needs rains also", while freezing temperatures for France and Germany "continue to be an issue this week and will need to be watched".

Benson Quinn said that "dry conditions in Russia/Ukraine and China are of concern if timely June rains do not develop".

'No rain is in the forecast'

In the US, the picture of the ideal start to spring is definitely giving way to something less ideal, notably in Kansas, the main wheat producing state, where the rain needed to realise the best yields in at least 30 years ( as defined by the crop tour two weeks ago) is not appearing.

"No rain is in the forecast, and a timely rain is needed to finish the Kansas crop," Mr O'Dea said.

Talk of adverse weather is adding risk premiums to the grains and soybeans this morning with decline in winter wheat ratings and forecasts in central Midwest for warmer temps and drier outlook raising concerns domestically

US Commodities said that the US Department of Agriculture, which on Friday forecast a near-record domestic winter wheat yield, "may be overstating the crop with the current dryness in the southern Plains".

'Talk of adverse weather'

Concerns were crystalised by a tumble of eight points, to 52%, in the proportion of the Kansas wheat crop rated in "good" or "excellent" condition, in a USDA report overnight.

But there are fears for

corn

and soybeans as well.

"Talk of adverse weather is adding risk premiums to the grains and soybeans this morning with decline in winter wheat ratings and forecasts in central Midwest for warmer temperatures and drier outlook raising concerns," Benson Quinn said.

Wheat for July added 1.7% to $6.08 ½ a bushel in Chicago, and 2.1% to $6.27 ½ a bushel in Kansas.

In Paris, where the grain had support from a soft euro, which fell to a four-month low against the dollar on Greece concerns, the best-traded November lot gained 2.1% to E199.50 a tonne.

Cash vs futures

Wheat's performance helped Chicago corn rise too, by 2.4% to $5.97 ¼ a bushel, also gaining support from the continued strong cash market.

"July corn will need to converge with the cash. Either basis levels need to set back or July futures are undervalued," US Commodities said, with investors appearing to believe the latter.

Meanwhile, soybeans had a spur from bullish comment from Oil World, the influential analysis group, saying recent price falls had been "premature, and mainly based on technical factors rather than fundamentals".

The group added: "We see only limited downward potential for soybean prices in the near to medium term," following disappointing harvests in South America.

Chicago soybeans for July ended up 1.9% at $14.13 a bushel.

'Raised import needs'

And Oil World gave an extra nudge to

rapeseed

too, trimming its forecast for the European Union crop, the world's biggest, by 100,000 tonnes to a six-year low of 18.10m tonnes, citing poor autumn sowing weather and February's cold snap.

"The reduced production will raise EU import requirements of rapeseed and canola," the group said.

Paris rapeseed for August closed up 0.6% at E466.75 a tonne.

By Agrimoney.com

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