The surge in crude oil prices prompted by the drone strike on Saudi Arabian oil called the tune across financial market to start the week – with positive impacts for many agricultural commodities.
Much of this was direct, with corn futures for December, in their first day as the spot contract, closing up 1.6% at $3.74 a bushel, a four-week closing high.
Corn is in the US used largely in making ethanol, which for October stood 2.9% higher at $1.395 a gallon in late deals in Chicago, helped by RBOB gasoline, which rocketed 12.7% to $1.751 a gallon, in turn helped higher by the oil price surge.
Brent crude jumped 14.4% at $68.86 a barrel, on track for what would be its highest close since late May.
“Several questions are revolving around US ethanol demand as RBOB surges higher,” said Richard Feltes at RJ O’Brien.
“Margins for ethanol producers are expected to improve over the short-term.”
Corn prices were also helped by a downgrade of 0.30 tonnes per hectare to 7.63 tonnes per hectare in the forecast for the European Union corn yield by the European Commission’s Mars agrometeorology unit.
Futures in soyoil, another biofuels feedstock, for biodiesel, soared 2.8% to 30.28 cents a pound for December delivery, a five-month closing high for the contract, which is now up 6.4% in the past week.
Prices of the vegetable oil had already been helped by ideas that US President Donald Trump will boost biofuel use, and gained extra support on the Monday from data from industry group Nopa on the US soybean crush for August.
This showed soyoil stocks at 1.401bn pounds – down from 1.467bn pounds at the close of July, and the 1.623bn pounds at the end of August 2018.
Furthermore, the figure, actually a 21-month low, was short of analyst expectations too, of 1.410bn pounds.
And this despite a soybean crush of 168.085m bushels, down only 8,000 bushels month on month – ie 3.133m bushels above market expectations.
“Wow,” said Terry Reilly at Futures International, talking of a “huge crush”.
“Apparently the downtime in August was much less than expected,” he said, terming the data “bullish soyoil” and well as “bullish soybeans”.
That said, soybeans themselves added just 0.1% - albeit enough to close at psychologically important $9.00-a-bushel mark, feeling some pressure from a decent Midwest weather outlook.
‘Preventing the start of soybean planting’
“US weather looks to remain favourable for the next couple of weeks,” Benson Quinn Commodities said, adding that temperatures are “to move into the 80s and 90s” Fahrenheit, helpful for the late development of delayed crops.
Still, as the soybean sowing window opens fully in Brazil, Maxar said that weekend “hot and dry weather led to a further decline in soil moisture and is preventing the start of soybean planting”, with these conditions “expected to continue across northern and central Brazil over the next week”.
US soybean export news was mixed too, with a further 256,000 tonnes in sales confirmed to China, taking the total in two trading days to 460,000 tonnes.
Nonetheless, that is short of the 600,000 tonnes rumoured late last week to have been sold, while data on actual US exports last week was soft, at 666,000 tonnes - below the 850,000-1.05m tonnes investors had expected, and the 978,000 tonnes the previous week.
Back to the oil rally theme, and another biodiesel feedstock – canola/rapeseed – also benefited from the soaring crude price.
Winnipeg canola for November closed up 0.6% at Can$452.70 a tonne, while Paris rapeseed for November ended up 1.2% at E388.00 a tonne, a contract closing high, and the best finish for a spot contract since April 2017.
CRM AgriCommodities said that “concerns remain around dry conditions for Canola in Australia”, with Abares trimming its forecast for Australian exports of the oilseed in 2019-20.
Furthermore, there are already concerns over the European Union’s 2020 rapeseed crop too, with Agritel cautioning that “French producers are still concerned about sowing strategies and the poor emergence of the rapeseed due to the lack of precipitations”.
‘Cause for concern’
Sugar - another market linked heavily to energy markets, given that many mills in the likes of Brazil cane choose to process cane into either biofuel or sweetener – soared 2.7% to 12.26 cents a pound for March delivery.
Buying was seen fuelled by profit-taking by hedge funds on some of the record net short position they have in the sweetener.
Broader factors, including oil, have “suddenly given reason/cause for concern/a profit take signal for the shorts in the tape,” said Sucden Financial.
“The short term environment seems overloaded/lopsided on the short side - especially considering the most recently added shorts, over the last eight sessions, are below this morning’s gap.”
And New York cotton futures for December eventually managed a positive close, adding 0.5% to 62.59 cents a pound, with higher oil prices implying higher values of rival fibres such as polyester.
One indirect beneficiary of the oil price spike was wheat, which gained 1.0% to $4.88 ¾ a bushel for December delivery, for Chicago soft red winter wheat.
There was some positive news around anyway, with Australia lowering its wheat export forecast for 2019-20, and US wheat export data for last week not bad, at 459,000 tonnes, within the range of market expectations and up from 413,000 tonnes the previous week.
(US corn exports, by contrast, at 422,000 tonnes were below market forecasts of a figure of at least 450,000 tonnes, and below too the 612,000 tonnes the previous week.)
However, extra support came from a jump in the rouble of 0.6% against the dollar, making Russia’s wheat exports a bit less competitive.
Kansas City hard red winter wheat futures for December soared 2.3% to $4.09 a bushel, amid ideas of covering by hedge funds of some of their large net short in the contract.