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Evening markets: Cotton futures slump, as coronavirus worries deepen

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Are investors going to have to rethink those ideas of large increases in US soybean and, especially, corn sowings this year?

 

The profitability prospects for farmers looked soft enough already, at last week’s US Department of Agriculture Outlook Forum, which forecast average 2020-21 US farmgate prices of $3.60 per bushel for corn, down $0.25 a bushel year on year, and $8.80 per bushel for soybeans, up $0.05.

 

However, according to Karl Setzer at AgriVisor, “these cash values would equate to negative returns of $29.00 on corn and $77.00 on soybeans in the heart of the Corn Belt”.

 

He noted the USDA was forecasting a further rise in debt from levels that “led to a 24% increase in bankruptcies in 2019, and that number may rise again in 2020”.

 

Price ratio

And price prospects have only got worse in the week since the USDA forum.

 

New crop December 2020 corn futures ended on Thursday at $3.77 ½ a bushel, down 1.0% for the session and down 2.8% week on week, and at a contract closing low.

 

November 2020 soybeans have fared better, actually nudging 0.1% higher on the day, although still down 0.4% week on week.

 

The new crop soybean: corn price ratio has widened from 2.36 to 2.42, boosting the oilseed’s appeal, so doing something to counteract the USDA’s forecast last week of a huge rise in corn sowings and inventories next season.

 

‘Driving new case growth’

The key worry for ag investors, in this session as for much of the last month, was coronavirus (although corn has faced additional pressure from the USDA’s US 2020-21 stocks forecast).

 

While the rate of new Chinese cases is slowing, now “the focus is, correctly out of outside of China where… several [country] outliers are driving new case growth,” said Shore Capital, citing South Korea, Italy and Iran.

 

Shares fell again, by 1.1% in afternoon deals on Wall Street, after closing 3.2% down in Frankfurt and by 3.5% in London, returning to levels actually first reached in 1999 – ie London stocks are a touch lower for the century.

 

Brent crude stood 2.2% down at $52.24 a barrel, looking poised for its weakest finish in 14 months.

 

Cotton plunges

Ags faced the test on Thursday of US export sales data for last week, giving some insight into how the virus is effecting importer behaviour.

 

For cotton - as an industrial crop so lacking the defensive qualities of food peers – the data were seen as particularly unsupportive, with the New York May contract plunging by 4.4% to 62.50 cents a pound for May, a five-month closing low.

 

Most of that came after the data were released, showing US upland cotton export sales last week at a seven-week low of 214,649 running bales.

 

Actual exports, at a five-week low of 324,084 running bales for upland, were below the level needed to match US Department of Agriculture expectations of 16.5m bales for the whole of 2019-20.

 

‘Extremely good news’

But food ags broadly suffered too, even though the dollar fell this time, by 0.5% against a basket of currencies, making dollar denominated exports, such as grains (and cotton) more affordable as exports.

 

Wheat suffered the misfortune that the rouble softened even against a falling dollar, shedding 0.8% to make Russia’s exports even more competitive.

 

Furthermore, drought-hit Australian farms are enjoying long-awaited rains, and expecting more.

 

“The coming three months are set to bring parts of Australia the significant rainfall they have long been awaiting,” said Commerzbank, noting Australian Bureau of Meteorology assessments.

 

“This is extremely good news for farmers.”

 

Spring vs winter

This before getting on to US export sales data for wheat for last week which, at 381,799 tonnes, were below the range of market expectations of 400,000-600,000 tonnes.

 

Benson Quinn Commodities termed the routine, although highlighted that it disguised a decent figure for spring wheat, at a four-week high of 201,037 tonnes.

 

Minneapolis spring wheat futures indeed outperformed – but that still meant falling by 1.1% to $5.24 a bushel.

 

Chicago soft red winter wheat, the world benchmark, fell by 1.8% for May to $5.27 ¼ a bushel,

 

‘Bear spreading’

Chicago corn futures, meanwhile, shed 1.7% for May to $3.68 a bushel, a contract closing low, and the weakest finish for a nearest-but-one lot in five months.

 

Terry Reilly at Futures International flagged “bear spreading, despite a sharply weaker dollar, on coronavirus concerns”.

 

US corn export sales data, at 864,635 tonnes, were down nearly 400,000 tonnes week on week, and at a six-week low, and at the lower end of the range of market expectations of 800,000-1.30m tonnes.

 

Soybeans vs corn

Soybeans fared best of Chicago’s big three, adding 0.4% to $8.95 a bushel for May.

 

And this despite particularly weak US export sales data for last week, of 339,309 tonnes, the lowest of 2020, and below market expectations of 600,000-900,000 tonnes.

 

One factor supporting soybeans has been the USDA’s – relatively - weak US sowings number for the oilseed this year, and the especially big corn figure.

 

This is, according to market talk, spurring long soybean-short corn spreads.

 

Soymeal soars

Then there are the ideas of a levy on Argentine soy shipments, ideas that continued to support soymeal on Thursday, with Chicago May lot closing up 2.0% at $303.60 a short ton – ending back above the $300 mark for the first time in nigh on a month.

 

(Argentine is the world’s top soymeal exporter.)

 

“There is much speculation that Argentina will increase their export duty on beans by 3% to 33% by the weekend,” said Benson Quinn Commodities.

 

By contrast, “there has not been much talk of increases in the grains”, a factor which ultimately “could foster more grain production” as farmers switch out of soybeans.

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