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Evening markets: Brazil frost fears return to revive coffee rally

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Frost is back on the radar in Brazil.

 

According to Somar, late this week will bring rains to Parana, stretching up through the south east of the country – and a front which will be followed by cold.

 

“At the weekend there is a risk of frost in Paraná and early next week the risk is also for the southern areas of Minas Gerais”, the top coffee-growing state, Somar said.

 

Price gains

Arabica coffee itself closed up 1.4% at 101.15 cents a pound in New York, for September delivery, regaining some of the risk premium lost after the previous, early-July freeze turned out to be less severe than some investors had thought.

 

The gain took the contract not only above the psychologically-important 100 cents a pound mark, but back ahead too of its 100-day moving average.

 

London robusta coffee added 2.0% to $1,371 a tonne, but was still way short of its 100-day line, at $1,420 a tonne.

 

‘Lack of sufficient demand’

The cold concerns also helped some firmness in raw sugar, which edged up 0.4% to end at 12.07 cents a pound for October, in New York.

 

Industry group Unica last week highlighted some damage to the Centre South cane crop from the early-July freeze.

 

And then there was the Commodity Futures Trading Commission report on Friday showing hedge funds having extended their net short dramatically in the week to last Tuesday – data Sucden Financial termed “surprising”, although with Marex Spectron talking of evidence of further fund sales.

 

Sucden added that “the longer-term fundamentals may be getting more constructive with lower crops expected in the main producing areas”.

 

However, the trading house added that “it is clear that there is still a lack of sufficient demand to absorb excess sugar produced in the past two years and only when this is absorbed will prices react”.

 

It also noted that “Indian stocks and over production still hangs over the market and the government is expected to announce export policy, and possible subsidies, imminently”.

 

‘Feels corrective’

Also supporting ag prices, with the Bcom ag index up 0.8% in late deals, were grains, with wheat leading in Chicago, as it had early on.

 

The September soft red winter wheat contract stood up 1.9% at $5.05 ¼ a bushel, back above its 20-day moving average.

 

Not that all felt such gains convincing, with Benson Quinn Commodities noting, for grains in general, that early price headway “feels corrective as there is little in the way of fresh, supportive inputs to trigger long term buying.

 

“The markets were closer to being oversold than overbought.”

 

At AGriVisor Karl Setzer said that “trade is taking support from month-end positioning.

 

“Funds have been sellers for most of the month so to see short covering is not surprising.”

 

Spring wheat springs

Still, in the wheat market, there were some fundamental factors bulls could point to, with Algeria releasing an import tender, in the latest sign of Middle Eastern-North Africa demand, following purchases last week by Egypt, Jordan and Tunisia.

 

This when Russian prices are on the rise, with SovEcon pegging Black Sea export prices for 12.5% protein wheat at $197 a tonne, up $2 a tonne week on week.

 

Another interesting dynamic, as the session went on, was a pick-up in prices of Minneapolis spring wheat, which after a sluggish start stood up 1.5% at $5.32 ½ a bushel for September delivery, on track for what would be its first close above its 20-day moving average in six weeks.

 

The Minneapolis has been marked by a particularly large speculator net short position, in anticipation of US wheat tour results which did not come in as positive as expected, and whether some funds are getting out with the end of the month nearing…

 

‘Need for precipitation’

Corn futures, meanwhile, stood up 0.7% at $4.27 ½ a bushel for December delivery, gaining help from US weather worries, as well as from rival grain wheat.

 

Richard Feltes at RJ O’Brien said that “some traders are citing less-than-needed rains across portions of the eastern Midwest at a time of accelerating moisture draw as pollination ramps up”.

 

AgriVisor’s Karl Setzer also noted “the need for precipitation in the Corn Belt as abnormally dry soils are starting to be reported.

 

“Temperatures are not forecast to be as high as earlier thought, but still at a level where stress will be applied to crops.”

 

Meal support

Mr Setzer added that “another reason for the strength” in grains “is renewed optimism on US/Chinese trade talks as sides meet this week.

 

“While no major progress is expected at this meeting, the simple fact the two sides are willing to sit down is positive.”

 

Soybeans, particularly sensitive to US-China relations, added 0.5% to $9.05 ¾ a bushel for November delivery, rising just back above the contract’s 50-day and 100-day moving averages.

 

Soymeal helped by clinging on to early gains, adding 0.6% to $311.50 a short ton in late deals, with the level of $309 or so looking increasingly like a price floor which could be tough to break below.

 

US soybean exports last week, at 1.03m tonnes, came in ahead of market expectations of a 400,000-800,000-tonne figure, and were nearly twice those the week before.

 

Wheat exports, at 390,730 tonnes, came in towards the bottom end of the range of expectations of 350,000-550,000 tonnes.

 

US corn exports last week, at 645,367 tonnes, were towards the top end of the range of market forecasts of 400,000-700,000 tonnes, and up more than 200,000 tonnes week on week too.

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