Agricultural commodities showed a little bit of their defensive quality.
Many risk assets continued to struggle on Tuesday, as the coronavirus outbreak continued to make headlines outside China, with three further Italians dying of the disease, and Switzerland confirming its first case.
Wall Street shares as measured by the S&P 500 index stood 1.6% lower in afternoon deals, now down 6.5% from their February 19 record high, while London stocks closed down 1.9% to report their weakest finish in a year.
Brent crude lost 2.1% to $55.12 a barrel.
‘Buyers will still need commodities’
But the Bcom ag subindex stood up 0.2% in late trading, even as the overall Bcom commodities index lost 0.9%. (Even the haven of gold lost 1.0% to $1,644 an ounce.)
“The concern for commodities is what this [coronavirus fallout] means for demand,” said Karl Setzer.
And although “disruptions to trade will take place in the short term, in the long term, buyers will still need commodities”.
In particular agricultural ones, with food a primary necessity.
‘Busy again buying’
There was some evidence of end-users taking advantage of lower prices, with reports of South Korean purchases of grains, after Saudi Arabia’s large wheat order on Monday.
“South Korea is busy again buying corn, wheat and searching for soybean meal,” said Terry Reilly at Futures International.
“We estimate South Korea bought at least six cargos of corn so far this week,” although there are reports they skipped on soymeal buying.
“South Korea’s NOFI made no purchase in their tender to buy 60,000 tonnes of soymeal sourced from South America, stating that prices were too high,” CHS Hedging reported.
‘Users can find some value’
At RJ O’Brien, meanwhile, Richard Feltes noted talk of a “dramatic surge in grain/oilseed end-user pricing” in the last session.
And Benson Quinn Commodities proposed that “users can find some value in corn and soybeans near these [price] levels”.
This when “producer selling is going to be next to nothing, with what bushels are sold tending to be distressed sales”.
That said, the broker downplayed the potential for these dynamics spurring price revival, adding that it did “not believe that side of the trade will need to chase markets higher in the near term”, with coronavirus worries still predominant.
Against such a backdrop, corn futures for May edged 0.1% higher to $3.76 ½ a bushel in Chicago.
Soft red winter wheat managed a 0.4% recovery to $5.37 a bushel for May, with reports of a 125,000-tonne purchase of the grain by Tunisia also supporting sentiment.
May soybean futures, meanwhile, added 0.7% ahead to $8.84 ¼ a bushel, helped by some firmness in soymeal, which gained 0.3% to $293.00 per short ton for May – offsetting pressure from weaker vegetable oil markets.
Chicago soyoil for May ended down 0.7% at 29.62 cents a pound, following a 4.1% plunge to 2,438 ringgit a tonne in Kuala Lumpur palm oil, the weakest close for a benchmark contract in nearly four months.
Palm oil is now down 23% from a January 10 high (when Agrimoney cautioned its rally was looking tired).
Besides the threat from coronavirus to Chinese demand – palm oil futures for May also fell 2.5% on the Dalian exchange to 5,308 yuan a tonne – prices are also being undermined by political unease in second-ranked exporter Malaysia, where Mahathir Mohamad quit as prime minister on Monday, only to be immediately appointed as interim prime minister.
With Mr Matahir having hurt Malaysian palm oil export prospects thanks to a spat with top importer India, the move is “leaving some to think the tensions with India will drag out”, said Futures International’s Terry Reilly.
CHS Hedging flagged pressure on palm oil values from “lower exports and political crisis”, with cargo surveyors also reporting weaker Malaysian shipments of the vegetable oil so far in February, compared with the same period of last month.
Cotton vs cocoa
Among soft commodities, cotton, as an industrial commodity, sided with shares rather than foods and closed down 1.9% at 66.30 cents a pound in New York for May delivery, a two-month closing low, and one which dragged the lot back below its 200-day moving average.
“The spread of [coronavirus] outside of China, which spiked in some nations over the weekend, is thought to be attributable for most of ICE cotton’s setback as cotton futures seemed to follow financial and equity market southward,” said Louis Rose at Rose Commodity Group.
However, cocoa proved more resilient in edging 0.2% higher to $2,806 a tonne in New York for May, (although a strong pound undermined London cocoa for May a bit, sending it down 0.2% to £2,003 a tonne).
“Cocoa is finding enough support from West African supply issues to hold its ground near the top end of its December/February upmove,” said ADM Investor Services.
“Cocoa remains on-track for a global production deficit this season, as Ivory Coast and Ghana production should come in below last season’s total.”
That said, “near-term demand concerns in Asia and Europe have put some brakes on the cocoa market.
“The coronavirus outbreak is likely to have a negative impact on Asian chocolate demand.
“While most of Asia’s cocoa grindings occur in Indonesia, Malaysia and Singapore, China remains the ‘engine’ for demand in the region.”
And New York arabica coffee futures for May ended up 1.5% at 108.50 cents a pound, maintaining their recent knack for volatility, with London robusta for May adding 0.7% to $1.282 a tonne.
“The market is showing signs that a longer-term low was put in during early February,” said ADM Investor Services, noting reports that Brazil’s National Coffee Council has said that domestic “near-term coffee stocks are at one of their lowest levels in recent years, and that will result in tight supplies until harvest reaches full speed in May”.
However, the broker added that “futures were “may have trouble sustaining upside momentum until there is more visibility on the near-term supply demand outlook”.
Coffee’s “global demand outlook has been weakened by the coronavirus outbreak”.