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Evening markets: Coffee futures leap 6%, as Covid spurs fears of export hold-ups

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Agricultural commodities, having fared less badly than other risks assets for the first two months of Covid-19, extended their outperformance to start the third month, led by a scorching gain in arabica coffee futures.

 

The Bcom ag subindex added 1.7%, to close back above its 20-day moving average, contrasting with a 0.5% fall in the Bcom index.

 

Shares also succumbed in the end to that fryday feeling, with the S&P 500 index tumbling 4.1% in late deals, looking on course for its weakest finish in three years.

 

And Brent crude lost early headway to stand down 4.3% at $27.26 a barrel – although remained above its 17-year low of $24.52 a barrel reached on Wednesday.

 

Jumping beans

The ag sector, however, witnessed a decent spread of gainers, and a standout performance by arabica coffee futures, which for May soared 6.2% to 119.70 cents a pound.

 

That took to 16.7% the contract’s recovery in the last three sessions of this week.

 

One factor in the surge was resilient demand, at least for drink-at-home products, as underlined by US-based JM Smucker, owner of brands such as Dunkin’ Donuts, Folgers and Cafe Bustelo.

 

But this when there are worries over supplies, with logistical hiccups from the Covid-19 outbreak are provoking worries over shipments from major exporters such as Honduras, which has ordered the seven-day closure of all private enterprises to limit the spread of coronavirus, and Brazil.

 

‘We may face some problems’

In Brazil, Silas Brasileiro, president of the CNC coffee producers’ group, said that there would be “no shortages” of beans per se.

 

However, on getting the coffee around, he warned that “we may face some problems related to cargo transportation, mainly abroad”.

 

He voiced “the possibility of a lack of [shipping] containers that are held-up in China’s ports due to the pandemic of the new coronavirus”.

 

Mr Brasileiro underlined too “optimism about world consumption, with several players saying that it should retain a constant growth rate, despite the impacts that the coronavirus pandemic will cause to the world economy”.

 

In grain markets too, “South American logistics have taken centre stage”, broker Benson Quinn Commodities said.

 

Exchange squeeze?

This makes the coffee lodged in ICE exchange warehouses for delivery against futures only more alluring.

 

And there are worries over these supplies too, with ICE saying earlier this week that it could not guarantee that the grading of arabica coffee (and cocoa) lodged at its warehouses could be completed in time for delivery against May contracts due to “developing conditions related to the coronavirus”.

 

While the real managed a decent recovery against the dollar, of 1.3%, this could not derail the surge in arabica prices.

 

Robusta coffee futures posted notable, although less eye-catching, headway too, adding 2.3% to $1,244 a tonne for May, rising back above its 10-day moving average.

 

‘Aggressive closing selling’

Also among softs, raw sugar for May managed to rebound 3.0% from an 18-month closing low to end at 10.91 cents a pound in New York.

 

As Czarnikow reported, while prices eased off early highs “levels during the rest of the session, and indeed spent the final couple of hours back beneath 11 cents a pound… this was still good resilience given that the macro had turned away from its highs and was now more mixed.

 

“Aggressive closing selling sent May 2020 back beneath 11c to settle at 10.91 though still representing a much better performance than has been seen in recent times.”

 

‘Fundamental picture looks awful’

However, cotton futures remained wedded to gravity, ending down 2.3% at 53.68 cents a pound in New York for May delivery – the weakest finish for a spot contract since June 2009.

 

Sure, this looks a contrary move, to judge by recent, strong US cotton export sales data, showing commitments of 15.8m bales, of which 8.35m bales have been shipped.

 

However, “while these numbers look supportive, they don’t really mean much given the current situation, because shippers are going to face delivery problems,” said Plexus Cotton.

 

In fact, the “current fundamental picture looks awful,” the merchant said, noting that “with many retailers closed and unable to take in new merchandise, there is a ripple effect throughout the entire supply chain.

 

“Many shipments will get delayed or cancelled and there is real demand destruction.

 

“With people losing their income, even if only temporarily, and seeing their stock portfolios evaporate, they are more concerned about paying rent and putting food on the table than buying a new outfit or new bedsheets.”

 

Ethanol retreat

Among grains, it was corn which proved the laggard, falling $0.14 from its day high to close at $3.42 ¾ a bushel for May - a drop of 0.8% on the day, and finishing pretty much at its session low.

 

The gains of 3.3% earlier had been built on the twin engine of purchases by China – which the US Department of Agriculture confirmed had bought a hefty 756,000 tonnes of US corn – and of the recovery in energy values.

 

However, as Brent crude dropped, ethanol fell too in Chicago, to close down 3.4% at $0.982 a gallon for April delivery, reviving concerns about margins for producers of the biofuel, which in the US use corn as their main feedstock.

 

‘Good US demand’

Such biofuel market worries have, of course, been a fillip for soymeal prices, given the prospect of weaker output of the distillers’ grains which ethanol plants throw off as a byproduct.

 

And soymeal futures for May ended up 2.5% at $325.20 a short ton, a nine-month closing high on a continuous contact basis.

 

“Good US soybean meal demand continues to support Chicago” prices, said Terry Reilly at Futures International.

 

“US soybean meal basis was up $7-8 in several US domestic rail locations and truck basis was up $3-7 for some Indiana and Iowa locations. “

 

Argentine snarl-ups?

Logistics concerns helped here, as in coffee, too, with Benson Quinn Commodities noted that “there is talk of a mayor in Argentina shutting down a city”, ie Timbues, “which takes five export terminals offline.

 

“No one is sure if he can do that, but he can stop truck traffic,” and Argentina is the top exporter of soymeal, and soyoil, which edged a more modest 0.6% higher to 25.64 cents a pound in Chicago for May.

 

Soybeans themselves for May ended up 2.4% at $8.62 ¼ a bushel, led by meal, and also supported by the USDA announcement of the US export sale of 110,000 tonnes of the oilseed, to an “unknown” destination.

 

‘Strong signs of Chinese demand’

There are ideas that further Chinese purchases of US ags, including soybeans, might be on the cards too.

 

“Grain related news is focused on strong signs of Chinese demand for US products,” said Benson Quinn Commodities, noting comments by analysis group JCI that China “will start securing supplies to bolster reserve stocks”.

 

This is particularly so since logistical hiccups in the country are reportedly creating some spots of food shortages, which Beijing is running down its own stockpiles to relieve.

 

Significant purchase volume’

 

Certainly, also on China’s shopping list from the US, as revealed by the USDA on Friday was wheat (which is being stockpiled by many Western consumers as well), to the tune of 340,000 tonnes of hard red winter wheat.

 

“This is a significant purchase volume and the largest since China implemented retaliatory tariffs on US wheat in March 2018,” said US Wheat Associates, which promotes US exports of the grain.

 

And Kansas City hard red winter wheat futures for May indeed ended up 0.8% at $4.69 a bushel, while Chicago soft red winter wheat futures for May, the world benchmark, gained 0.9% to $5.39 ¼ a bushel, rising back above their 200-day moving average.

 

Still, futures ended below intraday highs, with the fall in corn prices one negative, and another a SovEcon forecast of a massive 84.4m-tonne Russian wheat crop this year, the second largest on record.

 

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