There was some goodish news for ag investors and some bad news to end the week.
The goodish news was that risk assets lost their pariah status, as authorities took further steps to cushion the economic and financial blows caused by the global coronavirus outbreak.
The European Union, for instance, pledged to do “whatever is necessary” to support the economy, while the People’s Bank of China cut reserve requirements for banks to reduce the pressure on lenders to act against wavering borrowers.
Risk assets gained, albeit to varying degrees. (Hence the goodish.) Wall Street’s S&P 500 share index stood up 3.5% in late deals, while London stocks ended 2.5% higher, recouping some of the 10% lost in the last session, but Frankfurt equities managed only an 0.8% bounce.
Brent crude gained too, although at $33.96 a barrel in late deals, up 2.2% on the day – also supported by US air strikes on Iranian-backed fighters in Iraq - it was well below an intraday top of $35.78 a barrel.
The bad news for investors in ags, at least dollar-denominated ones, was that the greenback got caught up in the recovery, soaring 1.3% against a basket of currencies, and so making dollar-denominated exports less competitive.
The dollar looks in fact on course for a recovery of nearly 3% this week.
By contrast, the real was down 0.7% against the greenback on the day (although not quite matching the last session’s record weakness), to stand more than 4% down for this week – cutting the value in dollar terms ags over which Brazil is a big pricing influence. (Eg coffee, sugar and soybeans.)
OK, Russia’s rouble - a big deal for wheat, given that Russia is the world’s top exporter - added 2.2% for the day. (For more on rouble implications for ags, click here.) But it is still down nearly 7% against the dollar this week, depressed by tumbling crude – of which Russia is the second-ranked exporter.
On top of that was the day of the week, it being a Friday - meaning two days without being able to trade, while the newsflow, including on Covid-19, continues unabated.
“Lately, weekends have been horribly bearish when trading resumes Sunday nights,” said Mike Mawdsley at First Choice Commodities.
Last weekend, after all, brought the news of Saudi Arabia’s oil production splurge, following Russia’s rejection of output curbs, and the consequent market panic.
“Will this coming one be different?”
At RJ O’Brien, Richard Feltes said that while “most believe warmer spring weather will dampen the spread of the virus”, there was “no confidence as yet that the worst of the corona news/negative market impact has passed”.
‘Liquidity remains low’
Faith in ags faded as the session went on leaving the Bcom ag subindex down 0.4% in late deals at 36.53, some 1.8 points below its intraday high, and on course for its record close since it started in 1991.
Losers included those ags linked to Brazil’s real, with arabica coffee for May shedding 1.7% to 106.75 cents a pound in New York.
Not that the Brazil weather outlook is perfect, with Maxar saying that, while in the north east of the coffee belt rains through Tuesday will “boost moisture for growth”, across central and southern areas “limited rainfall… will maintain significant dryness, stressing cherry growth
The CNC producers’ group, meanwhile, reminded of the ideas of a supply squeeze in Brazil’s market, in saying that physical traders “remained withdrawn and liquidity remains low”.
In the raw sugar market, while the spot New York May contract did manage to close up 0.7% at 11.62 cents a pound, gains were the exception rather than the rule for the roster of futures overall.
“The market is trading on global fear, and we are caught up in trying to guestimate the timing of a potential reprieve in emotions/contamination rates/government action,” Sucden Financial said.
“The physical market indicators – the May-July futures contracts spread, and the white sugar premiums - still favour the forecasted deficit global balance sheet story, but the panic selling continues.”
‘Cheapest in the world’
In Chicago, meanwhile, soybeans – of which Brazil is also, like coffee and sugar, the top exporter – fell by 1.4% to $8.47 ½ a bushel for May delivery, a fresh contract closing low, amid growing worries over a slowdown in US exports.
Karl Setzer at AgriVisor said, that “demand for US commodities is becoming more of a topic in the market”, adding that while the US “was an active seller of soybeans early in the marketing year, this started to trail off in late winter as buyers started preparing for the South American harvest.
The extent of the slowdown in US trade “now has some forecasters questioning the ability to reach projected totals” for US exports in 2019-20.
“Brazil and Argentina are cheapest soybeans in the world,” said Benson Quinn Commodities.
While the US Department of Agriculture did announce some large US export sales of soybeans earlier in the week, that demand has now tailed off.
Soyoil for May shed a more modest 0.01 cents, the minimum move, to 26.37 cents a pound, supported (as an ag used largely in making biodiesel) by the former oil price.
‘Demand has been good’
However, also in Chicago, soft red winter wheat for May managed modest gains, adding 0.1% to $5.06 a bushel, helped by the late-week bounce in the rouble, curtailing the competitiveness of Russian supplies at a time when there seems plenty of import demand around.
“World wheat demand has been good,” said Benson Quinn Commodities, adding that “US export sales are on pace” to meeting 2019-20 forecasts.
Richard Feltes noted the revival of “concern that an early exit from winter dormancy will increase the susceptibility of Russian wheat to late-spring frosts”.
Corn, meanwhile, for May closed unchanged at $3.65 ¾ a bushel, despite some improvement in export demand for US supplies.
Mr Setzer, noting that “US corn demand is being questioned as all-year exports have trailed expectations”, added that “demand has risen in recent weeks to negate some of these worries”.
Benson Quinn Commodities said that on export markets “US corn is competitive today”, although “looking forward Brazil and Argentina are the cheaper offers”.
‘Record export sales to brag about’
Back in New York, cotton moved more in line with the day’s market zeitgeist, as might be expected of an industrial ag, adding 1.3% to 60.49 cents a pound for May, bouncing from a contract low of 58.57 cents a pound hit earlier to post a positive “outside day, higher” chart pattern.
(That is, trading beyond the range of the previous session, and ending higher.)
Plexus Cotton noted how weekly US export sales data released on Thursday had given the market a “record export sales report to brag about, as low prices enticed 21 markets to book 661,900 running bales of upland and pima cotton last week”.
For 2019-20 so far, “we now have commitments of 15.4m statistical bales, of which nearly 8.0m bales have so far been exported” – and in fact 8.6m bales according to Census Bureau data, “which is supportive” to prices.
‘Time to play it safe’
Still, the merchant added that the broader “crisis is far from over and will likely deepen over the coming weeks or even months.
“The world as we know will change for a while and markets will continue to deleverage further.
“This is a time to play it safe and we would advise to seek protection via options, even at these seemingly low levels.”