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Evening markets: Demand worries undermine grain futures, weather hurts coffee

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Grains put in a soft finish to the week, as the worries over demand being deterred by higher prices encouraged a bit of reduction in values.

 

Bulls did, in fact, have some cards to play, with SovEcon’s sharp downgrade to its forecast for Russian wheat exports in 2019-20, now seen at a three-year low, and the mounting worries over the corn crop in France, and other parts of the European Union.

 

And the US weather outlook was not so perfect (depending on who you listen too), with Karl Setzer at AgriVisor saying that “there is a concern we could see a shift back to the hotter conditions” in the Midwest.

 

‘Some dryness will linger’

Maxar said that “rains have been quite limited across the central Midwest, though, and some dryness is now building across southern Iowa, northern Missouri, north central Illinois, north central Indiana, and southern Michigan”.

 

Sure, rains are “expected to return to west central areas by Monday, then return there later next week, bringing “some improvement in moisture.

 

“However, some dryness will likely linger in central Illinois, Indiana and southern Michigan, and moisture will decline in Ohio as well.”

 

‘Demand slowing rapidly’

Nonetheless, Chicago corn futures for December ended down 0.7% at $4.24 ½ a bushel, a three-week closing low, as worries over demand took root.

 

Sure, US and European weather “suggests higher prices and firmer spreads for corn especially”, said Mike Zuzolo at Global Commodity Analytics, noting that “some in the industry in France are expecting a 30-year low in corn output as a result of this record heat”.

 

However, futures are struggling as “demand for grains and livestock - with the exception of wheat - is flagging, and fitting the narrative that global trade is slowing rapidly”, he said.

 

Mr Setzer said that “demand is moving into the top headlines as yesterday’s US weekly export sales were all on the light side”.

 

‘Stocks rising’

At Halo Commodity Company, Tregg Cronin said that “each and every demand update we seem to get for the corn and soybean markets has been disappointing.

 

“Export sales, ethanol production and crush performance have all been worse than expected during the months of June and July.”

 

If it were possible to have a real-time monitor of US crop ending inventories “which updated with supply and demand changes as they occurred, it feels like ending stocks would have been rising this week”.

 

Crushers squeezed

Mr Setzer said that in fact, from a demand perspective, “the most concern now is on soybeans, where new crop sales are record low”.

 

Still, soybean futures for November actually managed a positive close, just, adding 0.1% to $9.01 a bushel, helped by another strong performance by soyoil, which for December gained 0.8% to 29.02 cents a pound.

 

That saw the soyoil lot close above its 100-day moving average for the first time in three months, and reflects a dent to the US soybean crush fostered by higher prices of the oilseed.

 

A “lower US crush has been soyoil supplies to 2019 lows, offsetting biodiesel and export demand weakness”, said Rabobank, saying crush margins had fallen by 70% from June.

 

Earlier, rival palm oil added 0.4% to 2,067 ringgit a tonne for October to close above its 100-day moving average, on a continuous chart, also for the first time in three months.

 

Wheat eases

Wheat, meanwhile, shed 0.7% to $4.96 a bushel in Chicago for September, undermined by the softness in corn, and finding resistance to letting its premium over the yellow grain rise much above $0.80 a bushel.

 

Indeed, the 100-day moving average, at $0.82 ¼ a bushel, of the wheat-corn spread chart seems to be proving a bit of a price ceiling.

 

Paris wheat for December eased 0.2% to E180.50 a tonne, back below its own 100-day moving average, with ideas of European crop damage from heat not extending to wheat, which is late in its development cycle (with some harvested), meaning heat could be helpful in drying the crop.

 

Soufflet estimated the French soft wheat crop 38m-39m tonnes, above an agriculture ministry forecast of 36.96m tonnes.

 

Beans tumble

Among soft commodities, New York arabica coffee futures for September fell below its 100-day moving average too, as it closed down 0.9%, at 99.75 cents per pound, a one-month closing low.

 

The decline completed a clean sweep of negative sessions this week, which have seen the contract drop 7.0%.

 

“Technical factors and dry weather, favourable to the progress of the harvest in Brazil, generated five consecutive negative sessions,” said Brazil’s CNC producers’ group.

 

While Somar Meteorologia forecasts some rains for coastal areas of Sao Paulo on Saturday, “for other areas of the South East, the weather will remain stable”.

 

Trader I&M Smith flagged forecasts for dry and warm weather “for the coming two weeks, which eliminates the threat of frost through to the historical mid-October end to the frost season”.

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