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Evening markets: Buoyant cotton, sinking soybeans divided by data expectations

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Not all crops are expected to emerge from Friday’s slew of data with bearish fundamentals enhanced – despite the high profile that soybean market woes are attracting.

 

Certainly, Chicago soybean futures for March closed down 1.0% at $9.55 a bushel, the contract’s weakest finish in four months, continuing to suffer from ideas that the US Department of Agriculture will in Friday’s monthly Wasde briefing raise estimates for domestic stocks of the oilseed.

 

“Concern mounts over a potentially negative January crop report,” said Richard Feltes at broker RJ O’Brien, with the USDA expected to raise its domestic carryout inventory forecast for 2017-18 by 27m bushels to 472m bushels, following a disappointing US export campaign so far.

 

While the USDA did on Wednesday announce 260,000 tonnes of US soybean export sales to an “unknown” destination, volumes at that level represent only a small part of the catch-up needed – and anyway, most of the purchase was for 2018-19.

 

‘Yields are normal’

 

Meanwhile, hopes are continuing to grow for Brazil’s harvest, which is in the early stages.

 

OK, so far “yields are normal for early harvest soybeans”, Allendale said.

 

But production upgrades keep coming, with Celeres the latest to lift its hopes, by a little over 2m tonnes to 111.8m tonnes.

 

(The USDA is currently at 108.0m tonnes.)

 

‘Dismal outlook’

 

And fears are easing for Argentina’s crop too, with rain relief on its way for dry fields.

 

Rains expected this this weekend “should lead to notable improvements in soil moisture across nearly all of Argentina and southern Brazil”, MDA said, if flagging that “additional rainfall will still be needed in south western and far north eastern Argentina and far southern Brazil”.

 

RJ O’Brien’s Richard Feltes said that “weather leans decidedly negative” for prices, with forecasts for “five-day Brazil/Argentina rain coverage of 80%/75% respectively”.

 

Indeed, with production prospects mounting for rivals to the US in the soybean market, and talk too of a slowdown in Chinese import demand, he advised against “any effort to buy soy weakness on Friday”, after the USDA reports.

 

“The Wasde is unlikely to reflect the full scope of a dismal US soy outlook, he said, adding that “for the first time in years, USDA may be overstating Chinese soy import demand”.

 

‘Mixed and waffling’

 

Still, in the cotton market, the Wasde is being seen as a potentially bullish factor, expected by investors to bring a 290,000-bale downgrade, to 5.51m bales, in the estimate for US carryout stocks from 2017-18, according to a Bloomberg survey.

 

This reflects ideas of an upgrade of some 300,000 bales, to 15.11m bales, in the US export forecast.

 

At a global level, the carryout forecast is seen downgraded by a little over 700,000 bales to 87.29m bales, reflecting ideas of a downgrade of nearly 1m bales, to 118.9m bales, in the output figure.

 

Amid what Benson Quinn Commodities termed “mixed and waffling trade” in many ag markets ahead of the Wasde, cotton starred, ending up 1.7% at 79.65 cents a pound in New York for March delivery - a contract closing high.

 

Sowings prospects for 2018

 

Not that the Wasde was the only cause for cotton bulls to cheer, with prices of synthetic rivals rising last month in the European Union and US, according to the PCI Fibres Synthetic Fiber Index, albeit with drops in Asia.

 

And Louis Rose at Rose Commodity Group reported that “bitterly cold temperatures have slowed ginning and classing progress across” the southern Plains cotton-growing areas, including top producing state Texas, and where some “harvest of the 2017 crop remains to be done” too.

 

Still, at a time when prices of alternative crops are depressed, making cotton potentially particularly appealing as a sowing choice this year, is the fibre’s rally sowing the seed of price falls ahead?

 

A survey by Cotton Grower magazine showed the prospect of further growth in US sowings of cotton this year, of 350,000 acres, with market talk placing Kansas as a potential hotspot for area growth.

 

Given the poor returns offered by wheat, of which Kansas is the top grower, this may not be so surprising.

 

Nor is the underperformance of new crop December 2018 cotton futures, which added just 0.3% on the day to 74.92 cents a pound, further enlarging its discount to the March lot, which has continued to grow since being established two months ago.

 

‘Wheat markets remain supportive’

 

As for wheat itself, it actually closed 0.4% higher at $4.34 ½ a bushel in Chicago on the day, for March delivery, making a rare foray above its 50-day moving average, amid talk of short-covering ahead of Friday’s data.

 

Not that the USDA is expected to cut its huge estimate for world wheat stocks at the close of 2017-18 more than a fraction below the current 269.4m-tonne figure.

 

However, it is seen forecasting a drop of nearly 1.4m acres, to 31.1m acres, in US winter wheat seedings for the 2018 harvest, representing a fresh low in more than a century.

 

“Wheat markets remain supportive with concerns about potential lower acres in Friday’s report and cold weather forecasts,” CHS Hedging said.

 

Not that talk of cold in the former Soviet Union is yet attracting bulls, with temperatures not seen going low enough to damage crops largely not protected by a snow blanket.

 

‘Largest two-week drop in history’

 

Meanwhile, corn futures for March ended unchanged at $3.49 a bushel, returning to inaction after a couple of sessions of, relative, volatility.

 

Celeres cut its forecast for Brazilian corn output in 2017-18 by 500,000 tonnes to 94.5m tonnes, including a safrinha harvest figure of 66.8m tonnes.

 

However, on the negative side for prices, US ethanol production data for last week showed a slump of 36,000 barrels a day to 996,000 barrels a day.

 

Terry Reilly at Futures International said: ““Over the past two weeks, weekly production is down 94,000 barrels, the largest two-week drop in our recorded history”, with data on ethanol output dating back to April 2010.

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