Now there’s a novelty.
For the first time since Thursday, it looks like agricultural commodities, as measured by the Bcom ag subindex, will not set an all-time closing low.
The index - while earlier easing to 35.22, a fresh low since its started in 1991 - stood at 35.32 in late deals, a gain of 0.3% on the day.
And this when other risk assets were still having a difficult time of it, with the S&P 500 share index down 9.0% in late deals, after a 4.1% tumble in London stocks, while Brent crude traded 9.1% lower at $26.11 a barrel.
Earlier, Brent crude plunged as far as $24.52 a barrel, its lowest in 17 years.
Remarkably, the resilience in ags came despite not just the fall in oil prices, but a jump in the dollar too, which stood up 1.7% against a basket of currencies in late deals, a little below a three-year high set earlier.
Sterling hit its lowest against the dollar since 1985.
A stronger dollar cuts the competitiveness of exports, such as many commodities, denominated in dollars – while enhancing the affordability of contracts traded in other currencies.
So strength in London feed wheat futures for instance, which for May soared 3.2% to a two-month high of £157.90 a tonne, or their Paris feed wheat peer, which added 2.6% to E184.00 a tonne, was not so surprising.
“Paris Euronext May wheat has now gained E8.75 a tonne over the last two sessions… with the euro hovering over its February lows around $1.08 making the EU origins more competitive on the export market,” CRM AgriCommodities noting indeed that “the bloc’s exports are nearly record” for this time of the season.
’Caught a bid’
But many dollar-denominated contracts posted gains too – including wheat, which added 1.4% to $5.08 ¼ a bushel for the Chicago May soft red winter wheat contract, while the Kansas City May hard red winter wheat lot soared 3.3% to $4.46 ½ a bushel.
CRM AgriCommodities flagged the persistent talk that China has “bought US wheat”, although that has not been confirmed, and is likely anyway to be of spring variety (which ended unchanged in Minneapolis at $5.09 ¼ a bushel for May).
Whatever, there are signs of demand around, with CHS Hedging noting that “South Korea bought 70,000 tonnes of optional origin feed wheat”, while Terry Reilly at Futures International highlighted a tender by Syria for 200,000 tonnes of Russian origin, and two tenders by Ethiopia.
Benson Quinn Commodities, meanwhile, flagged support from the prospect of the “new northern hemisphere growing season”, a potential incentive for the injection of risk premium, while also noting that “wheat futures have caught a bid on oversold technicals”.
Certainly, hidden currents of fund purchases and, mostly, sales driven by Covid-19 fears have been having a big impact on markets generally, driving for instance the jump in the dollar, attributed to companies and banks hoarding the greenback to support their liquidity during the crisis.
‘South Korea was active again’
Whether there was some corn-wheat spreading (or unwinding of spreads) going on too – certainly, corn futures for May tumbled a further 2.2% to $3.35 ¼ a bushel – a 20-month closing low for a spot contract.
Sure, weaker corn prices have been spurring demand from importers too, as for wheat.
“South Korea was active again overnight picking up a couple cargos,” Terry Reilly at Futures International said, with Algeria and Vietnam said to be in the market too.
However, how much of this demand goes to the US, handicapped by the soaring dollar…
‘Plants are shutting down’
Meanwhile, there was the pressure too from tumbling energy markets, with Chicago ethanol futures for April plunging a fresh 7.4% to set a fresh record closing low for a spot contract of $0.952 per gallon.
“We are hearing some US ethanol plants are shutting down and/or ethanol producers have been unwinding hedges in corn since Friday, another sign of slowing down,” Mr Reilly said.
Karl Setzer at AgriVisor said that “many plants across the US have either slowed operations or are going off-line altogether due to poor economics”.
‘Cut in demand’
In fact, actual official US ethanol production data for last week were not disastrous, at 1.035m barrels per day, down 9,000 barrels per day week on week.
However, stocks were up 264,000 barrels to 24.598m barrels, chiming with ideas of demand destruction from Covid-19 effects.
Benson Quinn Commodities flagged a “cut in gasoline demand, with the US workforce either laid off or working from home will flow through to ethanol stocks”.
Besides, the worry is what happens ahead, Mr Reilly, while noting that US ethanol output for 2019-20 is “running 0.4% above the same period a year ago”, also said that “we may lower our estimate for corn for ethanol use [in 2019-20] by as much as 75m bushels by the end of this week”.
The weakened prospects for US ethanol output are, in cutting production prospects for distillers’ grains (DDGs), boosting demand hopes for rival high-protein feed ingredient soymeal, as Agrimoney discussed earlier.
“Declining DDGs output could give a medium-term boost to US soymeal demand,” Mr Reilly said.
“This and a slowdown in Argentina meal shipments have rallied board crush,” he said noting that at the Chicago exchange, “meal registrations continue to get cancelled” as sellers go elsewhere.
And with Argentine shipments facing the hurdle of export taxes, besides the woes at leading crusher Vincentin, this is one area where the US can hope to pick up orders from importers. (South Korea was in for soymeal too, buying 60,000 tonnes.)
“US beans and meal are also competitive and look to be even cheaper than Brazil offers at the moment,” said Benson Quinn Commodities.
“Along with uncertainties in Argentina this has offered support to at least two components of the soy complex.”
‘Values not seen since 2006’
In fact, soymeal futures for May closed up 1.9% at $304.00 a short ton, climbing back above 40-day and 50-day moving averages.
Soybeans themselves for May ended a more modest 0.2% up at $8.25 ½ a bushel, undermined by soyoil, which ended down 0.6% at 25.04 cents a pound for May, hurt by its role (in times of tumbling energy prices) as a major biodiesel feedstock.
Benson Quinn Commodities said that “soyoil is still under pressure from slide in energies with May soyoil trading at values not seen since 2006”, earlier hitting a fresh 14-year low of 24.68 cents a pound.
Among soft commodities, raw sugar fell a further 2.0% to 10.67 cents a pound in New York for May, an 18-month closing low, weighed by a 3.0% plunge in Brazil’s real, besides by the weak ethanol market, which boosts the appeal to cane crushers of making sweetener instead.
“Oil prices are nearing levels where, not only do Brazil’s mills do not want to produce ethanol, motorists in Brazil might not want to buy it,” said Tobin Gorey at Commonwealth Bank of Australia.
“That has some worrisome implications for sugar prices – if oil prices stay low.”
And that was before state-run Petrobras cut gasoline prices by 12% at the country’s refineries, the second significant reduction in a week.
Goldman Sachs has forecast sugar prices falling to levels not seen since 2007, overshadowing an announcement by Germany’s Suedzucker of “high demand” for sugar.
‘Expected to be hit hardest’
Cotton - which Goldman said represented with corn “the most energy intensive commodities”, meaning that “we would expect them to be hit hardest” by oil’s price tumble – fell by 2.2% to 56.64 cents a pound in New York for May.
That was a four-year closing low for a spot contract.
Goldman also flagged the threat to cotton demand from “the virus-related weaker global growth outlook, with our economists downgrading growth expectations for 2020 from 3.4% to 2%, with the risk of a recession increasing”.
Furthermore, “supply-side disruption to the textile industry in Vietnam presents a tail risk to US exports for the second and third quarters of 2020, as the country was the lone bright spot in US exports”.
However, flying the flag for soft commodity bulls was arabica coffee, which for May rose by 1.7% to 112.60 cents a pound.
This despite a caution from Goldman Sachs of a 10% dent to demand from Covid-19, as virus fears deter consumers from eating out, but came amid worries of a further squeeze on Brazilian exports from Santos, the country’s largest port, thanks to measures to tackle coronavirus.
Indeed, futures closed well below an earlier high of 119.45 cents a pound, after reports that some agreement had been reached with unions to keep shipments rolling.