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Evening markets: Grain markets dip, amid fears of 'aggressive' Argentine selling

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Soft commodities were a better bet than grains to start the week, with the likes of corn feeling pressure from the potential for selling, if short-lived, by Argentine farmers after the weekend’s election result.

 

Raw sugar futures for March, for instance, jumped 1.5% to 12.54 cents a pound in New York to start the week, gaining support in part from a stronger Brazilian real, which added 0.4% against the dollar, helped by surprising firmness in Argentina’s peso.

 

(The peso in fact set a record low early on against the dollar, weakened by the election of Peronist presidential candidate Alberto Fernandez in Sunday’s election, but rebounded to stand 0.8% higher against the dollar later on.

 

The recovery was attributed to profit-taking on short bets put in ahead of the election, and to reported that Mr Fernandez had held constructive talks with outgoing president Mauricio Macri.)

 

‘Largest difference on record’

Furthermore, sugar futures were supported by data showing that hedge funds had already restored their net short position in the sweetener close to a record high, potentially making for a position seen as overcrowded.

 

In the week to last Tuesday, Commodity Futures Trading Commission data showed that “sugar saw $436m bearish flows”, Societe Generale said, noting too number of traders short in the sweetener was “2.8 times higher compared to the number of long traders”.

 

That is “the largest difference on record”, and might also be interpreted by some as a signal of an oversold market.

 

SocGen added that in the week to last Tuesday, “the number of net short traders rose much faster compared to net short open interest”, a dynamic which “could imply late joiners have less capital to invest, or their conviction is lower compared to market participants who already hold a position”.

 

Coffee gains

Also in New York, arabica coffee futures for December rose by 1.1% to 100.50 cent a pound, supported too by the stronger real, which boosts the value in dollar terms of assets over which Brazil has a big say.

 

Furthermore, Marex issued a positive note on values, saying that “the arabica market needs to reprice” higher to prevent a continued decline in output of washed arabica beans in Central America.

 

Marex too lowered its forecast for the 2018-19 world coffee production surplus, raised its estimate for the 2019-20 output deficit, and forecast only a small surplus next season, even factoring in a 65m-bag Brazilian harvest, matching the record high.

 

London robusta coffee for January fared even better, adding 2.2% to $1,277 a tonne.

 

‘Aggressive in selling’

Such headway far outpaced gains on flat prices in Chicago grains, which were overshadowed by the potential for a surge in Argentine sales, ahead of export taxes which Mr Fernandez is expected to rebuild.

 

At Futures International, Terry Reilly said that “the consensus now is for an increase in agriculture export taxes”.

 

He added that “with the elected president taking office December 10, some think producers and exporters will become aggressive in selling agriculture commodities before changes in the tax structure take place.”

 

This just as resilient values in top exporter Russia were adding a bit of support to prices elsewhere.

 

Bang on cue, Egypt’s Gasc (actually after the close of Chicago trading) unveiled a tender for wheat.

 

Prices fall

Chicago soft red winter wheat futures for December ended 1.0% lower at $5.11 ¾ a bushel.

 

The decline came despite some solid US export data for last week, at 523,262 tonnes, down from the 580,680 tonnes the week before but ahead of the 393,939 tonnes for the same week of 2018.

 

Indeed, US wheat exports, as measured by cargo inspections, so far in 2019-20 are running 23% ahead of year-ago levels.

 

It was little help that Paris wheat futures closed down 1.0% at E179.25 a tonne.

 

‘Mixed bag’

Back in Chicago, corn for December dropped 0.8% to $3.84 a bushel, weighed by wheat, as well as by its own prospect of increased Argentine selling, for now, on fears of an export tax rise ahead.

 

Currently, Argentina taxes corn and wheat at 4 pesos per $1, equivalent to about 7%, well below levels in operation during the previous Peronist regime.

 

As for US harvest weather, Richard Feltes at RJ O’Brien said that this was a “mixed bag as heavy weekend rains across the eastern Corn Belt will be followed by 3-7 inch snows Monday-Thursday across portions of the Midwest.

 

“That will slow harvest, before wide-open conditions return Friday through late next week.”

 

US corn export sales last week were disappointing, at 380,660 tonnes, down nearly 200,000 tonnes week on week, and well below the 738,335 tonnes shipped for the same week of last year.

 

Soy prices gain

However, soybean futures for November did manage small gains, adding 0.2% to $9.20 ¾ a bushel.

 

The potential for an Argentine export tax hike is less of an issue for the oilseed in that levies are already relatively high, and close to levels in train before Mr Macri came to power.

 

Shipments of soybeans, as well as soymeal and soyoil (of which Argentina is the top exporter) are, per $1, taxed at 18% pus 4 pesos, equivalent to about 25%.

 

Furthermore, there remains some optimism of a China-US trade deal, and a boost to trade in the likes of soybeans to the former from the latter.

 

“US and China both confirmed they are close to a Phase One trade deal,” Mr Reilly noted.

 

US soybean exports are in fact already not faring so badly, with 1.57m tonnes shipped last week, up from 1.33m tonnes the week before, and 1.35m tonnes for the same week of 2018.

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