The bullish bonanza the day before the US Independence Day holiday gave way to something of a hangover on the day after, not least thanks to a revival in the dollar.
The dollar gained 0.6% against a basket of currencies, after stronger-than-forecast US jobs creation data curtailed US rate cut hopes, a factor reflected in some weakness in Wall Street shares too.
A stronger dollar weighs on prices of dollar-denominated assets, making them less affordable to buyers in other currencies.
‘Numbers were terrible’
And this when more elevated prices of grains, in the US particularly, are also already raising question marks over demand – worries which were hardly assuaged by US export sales data for last week, which were termed “bearish” by Terry Reilly at Futures International.
The US Department of Agriculture statistics showed US wheat export sales for last week at 276,500 tonnes, at the bottom end of the range of market forecasts of 250,000-550,000 tonnes (although at least actual shipments, at 735,900 tonnes, were strong).
For corn, US export sales were 175,600 tonnes for 2018-19, down 41% week on week, and 156,300 tones for next season, and without any redemption from strong shipments.
“Corn numbers were terrible, with shipments of 293,300 tonnes a marketing year low,” said Benson Quinn Commodities.
(Investors had expected an old-crop sales number of 100,000-400,000 tonnes, and 2019-20 figure of 100,000-300,000 tonnes).
The market is “definitely already seeing rationing of US corn and should see USDA lower exports for 2018-19 in the July 11 report,” Benson Quinn Commodities said, referring to the next USDA Wasde world crop supply and demand briefing.
‘Sales were poor’
For soybeans, the data looked better, with the USDA showing export sales figures of 867,600 tonnes for 2018-19, above the range of market expectations of 400,000-800,000 tonnes, although the 161,500 tonnes for next season fell short of the 200,000-400,000 tonnes expected.
That said, the old-crop figure did rely on a large Chinese order, which had been already announced.
“When removing China, soybean export sales were poor, in our opinion,” Mr Reilly said.
What definitely was disappointing was the lack, again, of an announcement of follow-up Chinese purchases, dashing hopes built by a Bloomberg report on Wednesday.
MaxYield Cooperative said that in fact “traders are still waiting to see if anything materialises on the trade talks between the US and China”, after hopes raised at the G20 summit.
However, the latest twists have not been positive, with Benson Quin Commodities saying that “China-US trade talk is offering resistance” to ag price gains, “with China reportedly saying it wants US to drop tariffs before talks resume”.
Certainly, Chicago futures in soybeans, usually a big US export to China, struggled, standing down 1.5% at $8.76 ½ a bushel in late deals, more than eradicating gains of the previous session.
As did the new crop November lot, standing down 1.5% at $8.95 a bushel, although earlier finding support at its 40-day moving average.
In New York, cotton, another large US export to China usually, stood down 0.8% at 66.70 cents a pound for December delivery.
Prices were also little helped by soft US export sales data, at 141,500 running bales for upland cotton for old crop (not so bad given that the season ends this month), and 55,300 running bales for 2019-20 (bad, given that the season starts next month).
Blend mandate proposal
Grains fared better, with corn adding 0.5% to $4.39 a bushel for September, in late deals, and the December contract up 0.2% at $4.42 ¾ a bushel .
Traders cited a US Environmental Protection Agency proposal to raise to 20.04bn gallons the amount of biofuel that refiners must blend into fuel in 2020, up from 19.92bn gallons this year.
That said, the conventional biofuels component was unchanged, at 15bn gallons.
Also helpful was a USDA attache report overnight highlighting the extent of Brazilian corn heading into making ethanol, so undermining the country’s corn export prospects a tad.
‘Several import tenders expected’
Corn’s gains helped keep wheat futures limit losses, despite some decent harvest talk, with the Chicago September soft red winter wheat contract down 0.1% in closing deals, at $5.13 ½ a bushel.
Kansas City hard red winter wheat for September stood down 0.1% at $4.43 ½ a bushel, marking a fresh low in its premium over September corn.
Wheat futures were little helped by the reaction of Paris contracts to data showing a five-point drop, to 75%, in the proportion of French wheat rated “good” or “excellent”, after the heatwave of last week.
The Paris December contract ended down 0.4% at E183.00 a tonne nonetheless – and this even as the euro slipped, so boosting the competitiveness of eurozone exports.
In fact, while Mr Reilly said that “several import tenders are expected for wheat after the big break in prices”, it may be hard for the US to secure much trade without a break in prices.
Agritel reported the Ukraine wheat harvest at 28.8m tonnes, nearly 12% above the five-year average – although below the USDA’s 30m-tonne estimate.
Back in New York, September arabica coffee futures rose to a fresh seven-month high, for a nearest-but-one contract, of 115.65 cents a pound, only to tumble on late-week profit-taking to settle at 111.10 cents a pound, down 2.2% on the day.
The reversal reflected in part some doubts over the extent of risk premium injected into prices, to account for fears of a Brazilian frost, concerns some investors believe overblown.
That said, cold temperatures remain on the radar, including in top growing state Minas Gerais on Saturday and Sunday.
Unhelpful for bulls was a report from Rabobank showing Brazilian coffee stocks larger than had been thought, particularly those held beyond the farm.
“The largest surprise was the huge stocks with exporters and co-operatives, showing a consistent increase of 30% year on year across samples,” the bank said, estimating the country’s arabica stocks up 3.7m bags year on year in March.
The figure prompted the bank to raise by 1.9m bags, to the “immense amount” of 45.9m bags, its estimate of the Brazilian arabica harvest last year.