Is the grains story just getting a bit too passe for funds?
Certainly, there was talk of manged money giving up on the complex, after Tuesday’s US Department of Agriculture Wasde report left key estimates unchanged – although soft commodities did retain appeal.
Certainly, many investors were struggling for alternative explanations for the extent of Chicago price falls on Tuesday, when corn futures for May close down 2.2% at $5.34 a bushel, ending below their 40-day moving average for only the second time since August.
Soybean futures for May dropped 2.1% to $14.09 ¾ a bushel, although wheat did manage to limit its losses for May to 0.6%, leaving the contract at $6.52 ½ a bushel.
Certainly, bears had some cards to play.
Richard Feltes at RJ O’Brien noted forecasts for “extensive rains coming into Argentina next week, expectations for low US export sales tomorrow and a reasonably favourable early spring outlook for the US Midwest Delta”, an early spring-planting area.
Terry Reilly at Futures International flagged too that “some are pointing to South American weather for the reason for the weakness in the Chicago complex”.
As for the trade factor, “some feel lower Brazil soybean export prices could suggest a bigger crop and potential exports to the US”, said Steve Freed at ADM Investor Services.
But there was also a sense that ennui, after a USDA Wasde briefing termed “dull”, “boring”, “a non-event” was encouraging some funds to look for more racy investment frontiers.
After all, bulls did have some points in their favour too.
On the Argentine soybean front, the Rosario grains exchange hacked its forecast for the imminent harvest by 4.0m tonnes to 45.0m tonnes – in a briefing which cautioned how even on Monday, forecasts for heavy rains (of more than 2 inches in places) had come to nought.
“Significant cloud systems dominated the skies again,” across major growing areas. “However, in the few places where there were rains, the accumulated amount was around 1mm”, the exchange said.
‘No time to short’
Meanwhile, US ethanol production last week, at 938,000 barrels per day, soared by 10.5% week on week to the highest level since mid-January, EIA data showed, more than regaining ground lost during last month’s cold snap.
And Mr Freed flagged market estimates for US corn stocks at the close of 2020-21 at 1.050bn-1.125bn bushels, well below the 1.502bn-bushel number restated by the USDA in the Wasde, and based on a larger export number.
For soybeans, he noted market estimates of 40m-100m bushels, below the Wasde figure of 120m bushels.
“This suggest a need for higher acres and perfect spring and summer weather,” Mr Freed said, adding that “this appears to be no time to short soybean futures”.
‘A touch stale’
Still, as CHS Hedging put it, grains traded lower “after analysts were disappointed with an unchanged USDA report yesterday”.
Mr Feltes said that a “price plunge lacking specific catalyst suggests that a portion of managed fund longs are opting to head to the sidelines, awaiting the next major development on supply which is unlikely to be clarified until late March at the earliest”.
(The USDA at the end of this month releases as much-anticipated briefing on US growers’ crop planting intentions.)
Benson Quinn Commodities, meanwhile, noted speculators liquidating “positions that have become a touch stale.
“There is a feeling that the liquidation of speculative length will continue simply because the positions aren’t offering as much reward as they once had,” the broker said.
It added that the Wasde had not just been “bland”, but “uninspiring” - and “bull markets need to be inspired”.
Still, investors appeared to have no trouble buying soft commodities – even cotton, which plunged limit-down in the last session.
The New York May cotton contract rebounded by 1.1% to 85.22 cents a pound on Wednesday, having been reduced by the last session’s fall “to a level where mill fixation of on-call commitments should support the market,” said Louis Rose at Rose Commodity Group.
Raw sugar futures, meanwhile, added 0.4% to 15.96 cents a pound for May – which actually appears a rather modest gain given the strength of tailwinds from energy markets, with Brent crude up 0.7% at $68.01 a barrel and a Brazilian real which leaped 2.7% against the dollar.
The jump in the real – strength in which boosts dollar values of assets in which Brazil is a big player – was attributed to a cocktail of factors, including efforts to revive emergy Covid-19 aid, and data showing unexpectedly strong Brazilian service sector activity in January.
‘Risk of running out’
Arabica coffee, meanwhile, for May added 0.3% to 130.85 cents a pound, also helped by the real, but also by further concerns over Brazil’s 2021 harvest prospects.
Safras e Mercado restated a forecast for the all-coffee crop at 57.10m bags, above estimates from many other commentators, but below a level of 60m bags which it said was needed to avoid a squeeze on Brazilian exports.
It also noted a slowdown in Brazilian farmer selling, saying that “the producer is not selling anymore because he is afraid of the risk of not having coffee”.