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Evening markets: Ag revival loses steam, as export demand signs awaited

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The buoyancy in ags lost a bit of altitude as the session wore on, and buying power found itself spread too thinly to sustain that much buoyancy.

 

Sure, shares remained in demand, with Frankfurt stocks closing up 1.4%, and Wall Street’s S&P 500 index up 0.8% in midday deals, returning close to record levels.

 

Crude oil, which has been particularly badly affected by worries over the impact of coronavirus on economic growth in China and beyond, soared 3.7% to $55.93 a barrel, for Brent crude, in gains attributed to talk that a treatment may be in close.

 

Chinese media on Tuesday suggested “a major breakthrough” in the quest for a coronavirus cure, although the World Health Organization has underlined that there are “no known effective therapeutics” against the disease.

 

“Markets are continuing to re-price virus risk, lowering the impact on growth and pushing equity and commodity markets higher,” said Benson Quinn Commodities.

 

‘Fly in the ointment…’

However, while the headline Bcom commodities index gained 0.9%, the ag subindex stood little changed, with a lack of evidence of end-user demand since the virus became headlines curtailing bullish enthusiasm.

 

The US Department of Agriculture, which in the eight working days to Monday had revealed seven substantial export sales of US ags, has now gone two days without.

 

Nor is confidence huge in the phase one China-US trade deal delivering much demand the US’s way, for now.

 

Commerzbank, while noting that “China is continuing to buy soybeans”, added that “the fly in the ointment as regards the latest purchases is that China has bought the soybeans – the talk is of 10 shiploads – in South America.

 

“It thus remains unclear whether, when and how China will fulfil its commitments according to the phase one deal with the US.”

 

‘Harvest delays are likely’

Sure, soyoil retained strength, supported by palm oil’s overnight surge. Chicago soyoil for March stood up 1.4% at 31.16 cents a pound in late deals.

 

Still, that was well below a high of 31.69 cents a pound reached earlier.

 

And soybeans themselves struggled to retain positive territory at all, standing unchanged at $8.79 ½ a bushel for March, below an earlier high of $8.88 a bushel.

 

This despite ideas of a slowdown in Brazil’s, sizeable, harvest.

 

 

 

“The Brazilian forecast is calling for an outlook of heavy rains moving through major production areas over the next 10 days,” some weather modest suggest that “totals may reach 10 inches,” Benson Quinn Commodities said.

 

“If verified some harvest delays are likely.”

 

‘Could remove Brazil from the market’

That could be deemed a positive for corn, with a slow soybean harvest delaying seedings of the follow-on safrinha corn crop, and with the end of the ideal planting window on the horizon, later this month.

 

“This crop may be smaller than initially expected due to slow plantings and less than perfect weather,” said Karl Setzer at AgriVisor, add that “this is a factor that bears monitoring as Brazil needs to rebuild corn reserves after over-extending sales last year.

 

“There is little doubt this could remove Brazil from the global corn market as a supply source, or at the least reduce the amount of corn they can provide.”

 

‘Slightly supportive’

On the demand front, US ethanol production data for last week came in strong, at 1.081m barrels a day last week, up 52,000 barrels a day from output the week before.

 

“The trade was looking for unchanged,” said Terry Reilly at Futures International, terming the data “slightly supportive for corn” prices.

 

After all, US ethanol stocks declined by a mammoth 770,000 barrels week on week, well ahead of the 249,000-barrel shrinkage investors had expected, according to a Bloomberg poll.

 

However, the idea of exports to China took a knock with reports that China is to sell 2.96m tonnes of the grain from state inventories on Friday, amid talk of local feed shortages caused by the lockdown ordered by Beijing in the face of coronavirus.

 

Dollar strength

Chicago corn futures for March shed 0.5% to $3.80 ¼ a bushel, amid further talk too of unwinding of long corn-short soy/wheat spreads.

 

Indeed, Chicago wheat for March edged 0.2% higher to $5.58 ½ a bushel, helped by a 1.1% gained to E192.75 a tonne in Paris wheat for March in late trading.

 

However, the impact was undermined by a gain in the dollar of 0.3% against a basket of currencies, curtailing the competitiveness of US exports of wheat and other ags, precisely when trade is very much in the spotlight.

 

‘Fundamentals remain strong’

In New York, raw sugar too lost early buoyancy to stand for March unchanged at 14.71 cents a pound in late deals – although still within striking distance of its two-year high of 15.13 cents a pound hit in the last session.

 

Just as raw sugar, despite being an ethanol-influenced market, managed to escape a dent from the collapse in Brent crude, so it has also missed out on gains as oil prices recovered.

 

 

 

As Sucden Financial noted, “the macro situation hasn’t really affected sugar all that much.”

 

The commodities house added that “we still think that the market is strong and will have another leg higher, possibly to 15.50 cents a pound in the short term.

 

“The fundamentals remain strong as shown by the premiums bid for at the fourth Thai Quota B tender yesterday,” when winning bids for May-to-July were priced 2.23 cents a pound above May New York raw sugar futures, and for July-to-September delivery 2.59 cents a pound above July futures.

 

Sucden added that “we recognise that markets do not go up in a straight line, and corrections are normal.

 

“Also that approaching expiries and the need to roll over positions will occasionally muddy the waters.”

 

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