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Evening markets: Fresh US levies on China send ag futures tumbling

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The close of July lived up to the reputation of month-ends bringing weakness to grain markets, with corn, soybean and wheat futures all putting in their lowest closes for two months.

 

Not that there was not some hope earlier of a better performance, with more debate earlier on about the level around $4.20 a bushel for Chicago December corn futures, which held in the last session even after the contract closed a chart gap which had attracted significant attention.

 

Earlier on, Karl Setzer at AgriVisor said that “we are seeing strong technical strength in the market which is limiting losses, especially in corn.

 

“We continue to work around the $4.20 level which has provided support so far.”

 

‘Data were bearish’

However, that support failed, little helped by US ethanol production for last week which, down 8,000 barrels a day at a three-month low of 1.03m barrels a day, stoked concerns of elevated prices curtailing demand.

 

US ethanol stocks, meanwhile, jumped by 779,000 barrels a day to 24.47m barrels a day.

 

“Ethanol production was down week-on-week but stocks continue to build to record levels,” said Benson Quinn Commodities.

 

Terry Reilly at Futures International said that “US ethanol data were bearish on a decrease in production and record weekly ethanol stocks”, adding that the “report surprised the trade”.

 

‘Pressure point’

Meanwhile, there was a broad consensus of a benign US Midwest weather outlook.

 

“Cooler temperatures are setting in across the Midwest this week before we see a warming trend late next week,” Mr Setzer said, terming “improved weather outlooks for the Corn Belt” as a “pressure point for the market”.

 

CHS Hedging that said “weather models are not agreeing on a 10-day temperature forecast, with European warmer and GFS cooler, but neither forecast is threatening for the Corn Belt”.

 

That concurred with the opinion of Maxar, which said that “while the model disagreement is leading to reduced confidence, risks for a significant heat event across the Corn Belt remain low.

 

“Even beyond the next 10 days, our forecast for the 11-15 day period shows seasonal to below normal temperatures across the Corn Belt, keeping the threat for heat stress quite low.”

 

‘Funds have more to sell’

Add to this the disappointment at a lack of a US-China trade deal, and prices faded – only encouraging further selling.

 

Benson Quinn Commodities said that in corn, “I don’t doubt the funds have more to sell today and a new low for the move is liable to trigger such selling”.

 

Corn futures for December ended down 2.7% at $4.10 a bushel, their weakest finish since late May, and ending below their 100-day moving average for the first time since May too.

 

“Bulls are nowhere to be found, or at least none which have the capacity to do any more buying,” said Tregg Cronin at Halo Commodity Company.

 

Wheat dips

Corn’s fall was of little help to rival wheat, which for September ended down 2.2% at $4.87 ¼ a bushel in Chicago for September delivery – at least only matching the contract’s weakest close since May.

 

Values were also depressed by growing confidence in the French harvest, with an upgrade from Strategie Grains following on from an even higher figure from Agritel.

 

Paris wheat for September ended down 2.3% at E174.75 a tonne, although French origin was seen as likely to have won part of a 570,000-tonne order by Algeria.

 

‘Traders are disappointed’

Nor did soybean futures fare much better, closing down 1.8% at $8.81 ½ a bushel for November, again a two-month low.

 

CHS Hedging flagged pressure on values from “non-threatening US weather and pessimism stemming from the latest US-China trade talks.

 

“Traders are disappointed no large fresh purchases by China were made over the last few days.”

 

Soyoil futures for December dropped 1.9% to 28.23 cents a pound, after the large delivery of 1,057 contracts against the expiring August contract raised Chicago as an attractive venue for physical sellers.

 

Ethanol vs sugar

Bulls could at least gain succour from some soft commodities, with New York raw sugar for October ending up 0.5% at 12.21 cents a pound.

 

Marex Spectron noted that “with ethanol prices rising” in Centre South Brazil, “mainly due to continuing very good demand for ethanol inside Brazil, the mills are making maximum ethanol/minimum sugar.

 

“The question is just how little sugar can they make in practice,” the trading house said, adding that for 2019-20 “guesses are for a final sugar production figure of around 25.5m tonnes compared to last year’s 26.5m tonnes”.

 

Sucden Financial also noted that “ethanol remains firm in Brazil due to continuing strong demand and the premium over sugar continues high”.

 

However, he cautioned that on a global basis “physical demand for sugar continues to be low in the short/medium term so there is little to stimulate a lasting rally”.

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