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Evening markets: Coffee, palm oil, wheat accelerate into September

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Ags got off to a strong start to August – especially an unusual recipe of coffee, palm oil and wheat.

 

Palm oil futures for November soared 1.7% to 2,784 ringgit a tonne in Kuala Lumpur, the best finish for a benchmark contract in nearly seven months, encouraged by a supportive price outlook from the Malaysia Palm Oil Board.

 

Some observers cited too a downbeat view of Indonesian exports from industry group Gapki, which pegged them at 24.9m tonnes, down 18% year on year – which could be seen as positive for Kuala Lumpur values if demand is switching to Malaysia.

 

(That is not impossible, given the effort Indonesia is making, including through export levies, to boost its domestic biodiesel programme.)

 

‘Not much precipitation in sight’

As for wheat, that soared 2.1% to $5.64 a bushel in Chicago for December delivery, the best finish for a nearest-but-one contract in five months.

 

The contract is now up 12.0% in three weeks, showing a remarkably steady upward trend in its graph.

 

Some fundamental causes were cited for the gains, including mounting worries over dryness in the southern Plains hard red winter wheat-growing region, with sowings of the 2021 crop in focus.

 

“And there is not much in the way of precipitation in sight, except for maybe Texas,” said Terry Reilly at Futures International.

 

In the Plains this week “rains in south central areas will improve moisture for wheat germination, but dryness will continue in western and northern areas,” said Maxar.

 

Southern hemisphere threats

The weather service also noted a dearth of rain in Australia, where “apart from far south western Western Australia, below-normal precipitation is expected over the next 10 day, maintaining dryness.

 

“Limited rains this week will allow moisture supplies to continue to decline across most wheat areas.”

 

Australia is one crop for which 2020 wheat prospects remain very much yet dependent on weather, with forecasters differ wildly in their opinions, varying from 31m tonnes from Agritel at the top of the recent range of estimates to 24.7m tonnes on Monday from National Bank of Australia.

 

And then there are worries too over Argentina, where some recent forecasts for rain have failed to be realised.

 

Karl Setzer at AgriVisor reported that in Argentina, “some locals believe he wheat crop will be down 50% on the year due to drought”.

 

Fund factor

And then there was the background theme of start-of-month fund buying which, while it didn’t catch light in row crop markets, was seen as fuelling gains in wheat.

 

As Mr Reilly highlighted, “wheat is treated a bit differently to corn, soybeans, in being a food crop”.

 

And this at a time when inflation is a popular investment theme, seen as having passed on to agricultural commodities after already having helped gold prices higher.

 

“When it comes to inflation, wheat is one of those that hedge funds like to look at,” Mr Reilly told Agrimoney.

 

Kansas City hard red winter wheat itself, in which funds have maintained a short position (unlike in Chicago), added 2.2% to $4.85 ½ a bushel.

 

Paris soft milling wheat, meanwhile, gained 1.1% to a six-week closing high of E187.50 a tonne for December.

 

Ethanol setback

However, the row crops struggled to maintain altitude, amid ideas that much of the recent deterioration in US harvest forecasts has already been factored in.

 

And, indeed, with those harvests imminent, meaning a stack of extra supplies to compete for buyers.

 

Chicago corn futures for December nudged 0.1% higher to $3.58 a bushel, albeit ending well below an intraday low at $3.51 a bushel, which found support around the 10-day moving average line.

 

On the plus side, the US Department of Agriculture announced yet another large export sale of US corn to China, this time for 596,000 tonnes.

 

However, less helpfully, Brazil failed to renew a zero-tariff ethanol import quota which had attracted US supplies, with the levy reverting overnight to 20%.

 

Corn futures were encountering “resistance from Brazil not yet renewing a duty-free tariff that allows 175m litres of US ethanol into the country”, Benson Quinn Commodities said.

 

Sluggish soy

Soybean futures followed corn in edging 0.1% higher, to $9.54 ¾ a bushel for November delivery, although representing a fresh seven-month high for the contract.

 

Firm vegetable oil markets were a bit of a help, although December soyoil underperformed palm oil in edging only 0.1% higher to 32.88 cents a pound.

 

The USDA also announced a sale of US soybean export supplies, of 132,000 tonnes booked to “unknown”.

 

While smaller than the corn sale, soybeans also had support from the USDA data overnight showing the US crop down 3 points at 66% “good” or “excellent”, in line with market forecasts.

 

(The corn rating fell by 2 points, short of investor expectations.)

 

‘Coffee should benefit’

 

In New York, cotton put on modest gains too, adding 0.4% to 65.40 cents a pound, helped by a 2-point drop to 44% in its US crop good or excellent rating.

 

Better headway was seen in the New York arabica coffee market, where the December lot closed up 1.8% at 131.40 cents a pound – the best finish of 2020 for a nearest-but-one contract.

 

A strong performance by Brazil’s real, up 2.1% against the dollar, helped.

 

But there is more to coffee’s strength than that, according to ADM Investor Services, which said that “with the Brazilian harvest nearly completed and their crop priced-into the market, coffee should benefit from Central American supply issues and improving global demand prospects.

 

“The market continues to find support from an improving global demand outlook.”

 

Shrinking stocks

The trend is noted in the London robusta market too, with November futures ending up 2.4% at $1,463 a tonne, also the best finish of 2020 for a nearest-but-one contract, helped as well by a squeeze on beans from top grower Vietnam.

 

“Near-term supply in Vietnam has become fairly tight with more than two months to go before their harvest begins, and that has provided additional support to the market as early forecasts are calling for them to have lower production during the 2020-21 season,” ADM said.

 

Both markets too are finding support from shrunken certified stocks, which for arabica fell by 360,000 bags, or 23%, last month to their lowest in three years.

 

It was also “the largest monthly decline since December 2004” and the “lowest month-end total since February of 2000”, the broker said.

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