The record fall in US ethanol stocks was not the only surprise in US energy sector data.
Official statistics also showed build of 2.4m barrels in US crude oil stockpiles, rather than the 2.8m-barrel drawdown investors had expected.
The data, coupled with worries over world economic growth hopes being damaged by crossfire from the US-China trade war, sent Brent crude prices 4.9% lower to $56.07 a barrel in late deals – taking losses this month to 14.0%.
The slump undermined enthusiasm in the ethanol market, despite the 1.35m-barrel fall in US stocks of the biofuel last week.
Chicago September ethanol traded up, but only by 0.1% at $1.429 a gallon in late deals.
And raw sugar, linked to ethanol as both compete in the likes of Brazil for cane, took one on the chin, plunging 3.3% to 11.34 cents a pound for October delivery, a 10-month closing low for a spot contract.
The “macro slump [is] obviously bad for crude and therefore sugar,” said Marex Spectron, although adding that the impact on Brazilian dynamics would be limited by the cane crush season being “in its home stretch”.
‘All pretty bearish’
As an extra setback to sugar prices, the trading house noted that India’s government “is discussing the new cane support system.
“And it looks as if it will be a rerun of last year, but with a slightly higher tonnage of subsidised exports” - covering 6m tonnes instead of 5m tonnes last time – “and maybe a touch more subsidy in financial terms”.
“That is all pretty bearish,” Marex said, if noting that logistical dynamics could meant that actual shipments hold at last year’s 3.5m tonnes.
Sucden Financial said that “the short term” outlook for sugar prices “looks negative due to overhanging stocks and a negative macro-economic environment, due to the current US-China trade dispute.
It may also have looked a reasonable bet that vegetable oils - also linked to energy markets, by being a big biodiesel feedstock - would suffer price falls too.
But that wasn’t way it panned out in the end, with Chicago soyoil for December gaining 1.3% to 28.37 cents a pound.
Helpful was a forecast by Thomas Mielke of Oil World that rival vegetable oil palm oil was poised to rise to $570 a tonne, early next year, from $468 a tonne last month, as measured by Indonesian export prices.
“Palm oil prices are undervalued,” Mr Mielke said.
“Production growth is slowing down. Demand for palm oil is accelerating.”
‘Stress will increase’
Furthermore, there are growing worries over dryness in Indonesia, the top palm oil producer, with Maxar saying that “showers were light and limited in coverage across South East Asia over the past week, favouring north central Sumatra, northern Malay Peninsula, and East Malaysia.
“As a result, dryness increased further, particularly across central and southern Sumatra, southern and eastern Malay Peninsula, and southern and western Kalimantan.”
And with these areas set for further below-normal rainfall levels, “dryness and stress will increase further on the palm crop”.
While palm oil futures gained only 0.1% to 2,104 a tonne in Kuala Lumpur, this did represent a fresh three-month high, with the contract struggling to get above its 200-day moving average on a continuous chart of 2,106 ringgit a tonne.
Also, soyoil had help from news that China was considering removal of its import quotas on the vegetable oil plus palm oil and rapeseed oil, with a consultation on the proposal to close on August 22.
This looks a knock-on effect of the slowdown in oilseed crushing prompted by the African swine fever outbreak which, in meaning a sharp cut in hog numbers, has quelled demand for meal.
“In addition, India has been a big buyer of vegetable oils, resulting in import competition,” said Terry Reilly at Futures international.
“Add these to the short rapeseed crop in the EU and increases in biofuel mandates across the world and global vegetable oil supplies could naturally tighten by the end of 2019-20.
“So, it’s not surprising to see some countries secure vegetable oil supplies for the upcoming crop-year.”
Sure, while a move is unlikely to bring China to the market for US soyoil, there would be knock-on effects of it buying elsewhere.
Paris rapeseed futures, by the way, managed only a 0.1% gain to E373.75 a tonne for November, siding more with palm oil than Chicago soyoil.
‘More concerns over weather’
Still, any gains could be considered something of a victory for bulls on a day when many other risk assets, including Wall Street shares as well as crude oil, were falling, and soybean futures for November added 0.2% to $8.55 ¾ a bushel.
Besides being boosted by soyoil, there remain worries over Midwest weather.
“Dryness remains a concern for corn and soybeans across portions of the central and eastern Midwest, particularly in eastern Iowa and northern Illinois, where rainfall has been less than 50% of normal over the past month,” Maxar said.
“We are seeing more concerns over weather, as soils are need of moisture across the US,” said Karl Setzer at Maxar.
“Data show that topsoil moisture in the eastern Corn Belt is the lowest since 2012.
“As we head into the ear [corn] and pod setting [soybean] stages this will be more of a concern.”
For corn, Chicago December futures gained 0.6% to $4.14 a bushel, although not adding quite enough to end ahead of its 100-day moving average, 1 cent above.
CRM Commodities noted that in Paris, maize futures “snapped an eight-session losing streak, finding support on the key E170-a-tonne level.
(That said, the November contract only managed a flat close, at E170.50 a tonne.)
“French farmers remain extremely concerned about this year’s yield potential after the likely ’devastating’ July heatwave.”
‘Square up short positions’
Also propping up corn prices, in Chicago at least, was a positive session for wheat futures, which rose 1.2% to $4.88 ¼ a bushel for September delivery, returning back above their 100-day moving average.
The headway had looked unlikely earlier, with CHS Hedging, for instance, noting “ample supplies, slow demand and harvest activity”.
However, one factor viewed as supporting wheat and other grains was profit-taking on short bets ahead of Monday’s Wasde briefing from the US Department of Agriculture.
“The market is bearish and poised accordingly but we have seen some modest support as traders square up short positions going into the report,” Benson Quinn Commodities said.
This looked an issue helping cotton futures in New York too, where the December lot ended up 0.2% at 58.83 cents a pound, despite the pressure from macro factors, to which the fibre, as an industrial commodity, is particularly attuned.
It is also a major US export to China, usually, so sensitive to US-China trade worries, and linked to oil markets via its rivalry with artificial fibres source from crude.
And, indeed, it is to be stressed that cotton prices remain close to three-year lows.
That said, hedge funds have positioned for that, with a near-record net short in New York futures and options, leaving the fibre potentially vulnerable to a short-covering spike in prices should there be a change in the direction of the newsflow.