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Evening markets: Cotton and cocoa defy jitters, as Covid-19 declared 'pandemic'

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The coronavirus outbreak was promoted by the World Health Organization from an epidemic to a pandemic.

 

Which, for financial markets, spelled growth in jitters, and a risk-off mood.

 

If the term pandemic is applied to a disease which is spreading rapidly in several different parts of the world, well, there was some echo in the malaise extending through global markets.

 

Shares, oil tumble

Wall Street’s S&P 500 share index stood down 5.0% in late deals.

 

On ag-related currency markets, Brazil’s real retreated 2.2% to R$4.75 per $1 (although not quite revisiting Monday’s record weakness) which Russia’s rouble shed 2.4% to return to 73 per $1.

 

Brent crude plunged by 4.0%, also sapped as Saudi Arabia’s energy ministry directed Saudi Aramco to raise its output capacity to 13m barrels per day, from 12m barrels per day, while UAE got in on the extra production game too.

 

“Saudi’s shock-and-awe strategy suggests to us that to bring Russia back to the negotiating table, it is serious in causing severe price and revenue pain for all oil producers,” UBS said.

 

Even gold was a touch lower, down 0.5% at $1.642 an ounce. (Although Australia’s buoyant eastern young cattle indicator continued its rise, adding 5 cents to Aus$766.75 Australian dollar cents per kilogramme, albeit for a price reported on Wednesday but actually dated Tuesday.)

 

Firm fibre

So it was an uphill battle for ags too to make headway.

 

Still, some did manage it, with cotton perhaps surprisingly among the gainers, despite being an industrial commodity, so sensitive to the same kind of forces which depress shares, and – as a rival to polyester – being sensitive to oil prices too.

 

New York cotton for May closed up 0.2% at 61.55 cents a pound, helped in part by technical factors, with the lot continuing to reject a fall back to six-month low of 60.18 cents a pound set at the end of February – with the 60.00 cents-a-pound mark a key psychological landmark too.

 

However, this resilience is in turn seen by fundamental analysts as a sign of buying emerging around this level, with some expecting US weekly export sales data due on Thursday to come in strong again.

 

‘Weather is too dry’

Cocoa was particularly strong, adding 1.9% to $2,625 a tonne in New York for May, and 2.9% to £1,921 per tonne in London for May, climbing back above its 100-day moving average.

 

“The weather is too dry in Ghana and Nigeria and there are fears that the mid crop is not developing well at this time,” said Jack Scoville at price Futures, echoing a caution from the International Cocoa Organization of weather threats in West Africa.

 

Maxar said that some rains were in the forecast for the region, but that “daily moisture is not expected to ease dryness in Nigeria and Cameroon this week”, although adding that “any precipitation will be welcomed by main crop flowering and mid crop growth”.

 

ADM Investor Services said that “global demand concerns are likely to shadow the market as long as the coronavirus continues to generate news headlines, but the market continues to see bullish supply/demand developments that can help to underpin prices this week”.

 

Sugar drops

However, early resilience in arabica coffee, spurred by ideas of a squeeze on Brazilian supplies, faded, with New York’s May contract ending down 2.0% at 112.05 cents a pound.

 

The weakness in the real was little help, in cutting the value of assets in which Brazil is a major player – a factor for raw sugar too, which ended down 2.6% at 12.26 cents a pound for May, a five-month closing low for a spot contract.

 

The fall in energy values has hurt sugar prices too, in boosting the appeal to Brazilian mills of turning cane into sweetener rather than biofuel.

 

Agroconsult this week raised its forecast for Brazilian Centre South sugar output above 30m tonnes – up from an estimate in September of 26.6m tonnes (as Agrimoney’s Live table shows).

 

“The big falls in sugar prices, and the even larger falls in oil prices, mean potential crystals, for now, look far more likely to crystallise into actual crystals,” said Tobin Gorey at Commonwealth Bank of Australia, flagging too the “high levels of hedging by Brazilian mills during the rally up to about 15 cents a pound.

 

“FC Stone and Archer, both sugar industry consultants, put these hedging levels at 70% and 78% respectively” in terms of expected 2020-21 exports already priced forward.

 

Argentine vs US corn

And among grains, downward was the default direction too, with weaker energy markets a negative for corn too, used largely in the US in making bioethanol, and which for May ended down 0.8% at $3.74 ½ a bushel.

 

In fact, official data showed that US ethanol production declined last week by 35,000 barrels per day to 1.044m barrels per day – defying expectations for an increase in output, as forecast by a Bloomberg poll.

 

However, Terry Reilly at Futures International said that “we expected the decrease in ethanol production due to weakening [ethanol production] margins”.

 

Mr Reilly also noted that “Argentina will see rain in its central growing region which will be beneficial for late-planted corn”.

 

Meanwhile, hopes for an uptick in US exports are being clouded by the fact that “Argentine corn is still offered cheaper than US”, as Benson Quinn Commodities noted.

 

‘Reports of yield loss’

Similarly, “South American soybeans are also around $7 per tonne cheaper than US” supplies, Benson Quinn Commodities said.

 

“So it appears China could still find better deals elsewhere” than buying from the US, as many investors have been anticipating following January’s phase one trade deal between the two countries.

 

However, on a more positive note for prices, “South American weather is more predominant in the market, as reports of yield loss from drought are multiplying,” Karl Setzer at Agrivisor said.

 

While the US Department of Agriculture, in Tuesday’s Wasde, raised its forecast for Argentine and Brazilian soybean crops by 1.0m tonnes apiece, and Conab raised its Brazil estimate, “a few groups have stepped out to cut soybean crop forecast to 123m tonnes or 124m tonnes from their previous projections for 125m tonnes,” Mr Setzer said.

 

Whatever, the USDA for the third successive day announced through its daily alerts system a US soybean export sale – this time of 194,000 tonnes to an “unknown” import destination.

 

Chicago soybean futures for May ended 0.3% down at $8.73 ¼ a bushel.

 

‘Bullish fundamental news absent’

It was wheat which actually fared worst of Chicago’s big three, tumbling by 1.9% to $5.12 ¾ a bushel for May, a four-month closing low.

 

In the wheat market, “fresh bullish fundamental news remain absent and as such both Euronext and US wheat futures settled lower amid fierce competition from Russia” in export markets, said CRM AgriCommodities.

 

Somewhat negative for US prices, S&P Global Platts reported a surge in wheat exports from Australia, of all places, largely to Asia – where US shipments had been making inroads.

 

“Australia has exported a record 1.3m tonnes of wheat in January, a massive 41% increase month on month, and a 52% rise from a year ago,” Platts said, with the Philippines, Indonesia and China the top destinations.

 

Still, buyers are around, with Tunisia purchasing 125,000 tonnes of wheat, and Turkey 305,00 tonnes (provisionally), and the likes of Algeria and Syria also in the market.

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