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Evening markets: Coffee, sugar gain, defying Trump curve ball on China deal

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You have to hand it to coffee and sugar.

 

Many markets, agricultural and otherwise, strugged with the fallout from President Donald Trump’s comment that he had “no deadline” for getting a trade deal done with China, adding that “in some ways I think it’s better to wait until after” next year’s US presidential election.

 

Deal-off sentiment sent Wall Street shares lower, with the S&P 500 share index down 1.0% in late deals, this after London’s FTSE 100 had shed 1.8%.

 

The US dollar also edged down a touch further against a basket of currencies, while among ags cotton, particularly exposed to US-China trade tensions, closed down 1.2% at 64.05 cents a pound in New York for March delivery, dropping back below its 50-day moving average.

 

‘Doing its own thing’

However, some New York soft commodities performed better, with raw sugar for March adding 0.9% to 12.86 cents a pound.

 

“The sugar market seems to be ‘doing its own thing’ at the moment, perhaps a little like the coffee market, as we seem to be moving/inching/stepping up slowly regardless of the ‘macro flows’,” said Sucden Financial.

 

The trading houses also noted that “the market gossip has recently focussed more on talk of Thai crop forecast revisions to the downside, sharp increases in domestic [Brazilian] gasoline prices by Petrobras, flooding issues/problems in the EU beet areas and the sugar markets’ sailing against the macro winds”.

 

The International Sugar Organization noted separately that Thai millers expect the country’s sugar output “to fall below 12m tonnes, tel quel, in 2019-20 from 14.6m tonnes a year ago, due to lower cane availability after weak monsoon rainfall and farmers’ shift to other crops, cassava in particular.

 

“For 2020-21, sources in the industry expect cane and sugar production to fall further, as most farmers have started moving to more drought-resilient crops.”

 

‘Major long-term bottoming’

As for New York arabica coffee, it soared 1.5% to 123.80 cents a pound for March delivery, a 13-month closing high for a nearest-but-one contract.

 

OK, some strengthening in the real helped, as it did for sugar, raising the value in dollar terms of assets in which Brazil is a major force.

 

And there remains talk of tightness in Brazilian supplies encouraging buyers.

 

But there also seems to be some fundamental adjustment in funds’ assessment of the contract going on too, with managed money turning net long in arabica futures and options for the first time since August 2017, and by the most since March of that year.

 

They may be being encouraged too by technical factors, with Commerzbank flagging that a close above 122.85 cents a pound on the weekly chart “would confirm a major long-term bottoming formation.

 

“If so, the October 2018 peak and the 200-week moving average at 144.25 cents a pound and 149.99 cents a pound [respectively] would be in the picture.”

 

‘Severely oversold’

In Chicago, there looked some technical support too for soybean futures, in that they managed a positive close, up 0.3% at $8.71 a bushel for January, despite being, like cotton, vulnerable to US-China relations.

 

However, unlike cotton, soybean futures were already trading at multi-month lows, with the January lot on Monday recording a six-month closing low, as it ended lower for an eighth successive session.

 

“I would be a cautious seller [in soybeans] as that market is severely oversold,” Benson Quinn Commodities said earlier.

 

“Ultimately, the lack of producer selling and oversold conditions should put a floor under beans.”

 

Commodity Futures Trading Committee data overnight showed hedge funds having already, in the week to last Tuesday, having undertaken a record selldown in soybeans, spurring some hopes that much of their selling urge had already been realised.

 

Furthermore, while weather conditions are viewed as benign in Brazil, for Argentina, Maxar said that while “rains today and Wednesday should improve moisture in Buenos Aires… drier weather late week will allow moisture to decline again”.

 

‘Remain unharvested until spring’

For corn, the Argentine weather outlook was somewhat helpful too, although Chicago March futures eased 0.1% nonetheless to $3.81 ¼ a bushel.

 

Investors were reluctant to remove too much risk premium when more than 10% of the US crop remains to be harvested, US Department of Agriculture data overnight showed.

 

“Some fields have snow and ice on the stalks,” after a weekend winter storm in northern areas, said CHS Hedging, adding that “some fields will likely remain unharvested until spring”.

 

Chicago bears the brunt

It was left to wheat to feel the wrath of jittery investors, with the grain, one in which long positions had gains to take, succumbing to profit-taking.

 

Chicago soft red winter wheat, the world benchmark and the funds’ favourite, for March closed down 1.8% at $5.25 ¼ a bushel, so seeing a steep fall in its premium against March corn, which had on Friday set a one-year high.

 

That said, with some bullish fundamental news around - such as Algerian and Egyptian tenders showing signs of end-user demand, while some production concerns linger in the likes of France and Argentina – Kansas City hard red winter wheat was not nearly so keen to fall.

 

The March contract ended 0.6% lower at $4.36 ¾ a bushel.

 

And Minneapolis spring wheat for March rose by 0.7% to $5.13 ½ a bushel, narrowing its highly unusual discount to Chicago wheat, in what looks like a move fuelled by closing of short Minneapolis-long Chicago spreads.

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