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Evening markets: Grains gain - but for how long, with ideas of huge moves ahead?

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Buyers were in the ascendancy in ags, although goodness knows how long that will last.

 

The Bcom ag subindex stood up 1.5% in late deals, boosted by pretty widespread buying, although vegetable oils caught the eye again.

 

Chicago soyoil for December soared 3.5% to 29.38 cents a pound, its highest finish in three months, after a 1.5% gain to 2,135 ringgit a tonne in prices of rival palm oil overnight, in Kuala Lumpur, also to a three-months high.

 

‘Stress will build’

The gains continued to be spurred by China’s proposal to ditch quotas on imports of both oilseeds, plus rapeseed oil, in the face of a domestic crush undermined by the dent to meal demand for hog rations, amid the African swine fever epidemic.

 

Furthermore, there remain worries over dryness in South East Asia, the top growing region, with Maxar reporting that “moisture shortages continue to expand across the region, and dryness will continue to build in most areas through early next week as rains remain limited.

 

“Stress will build on palm as well, especially across central and southern Sumatra, northern and eastern Malay Peninsula, and central and western Kalimantan.”

 

And this time, oil was onside too, adding 2.3% to $57.54 a barrel for Brent crude in late deals, so boosting prospects for values of ags linked to biofuels.

 

‘Much selling still to be done’

Indeed, raw sugar – linked by its competition with ethanol for cane - rebounded by 0.8% to 11.43 cents a pound for October delivery, bouncing from a 10-month low.

 

A strong recovery in the real helped the move, with the Brazilian currency adding 1.1% against the dollar, boosting the value in greenback terms of assets in which the South American country is a big player.

 

Not that all investors are convinced that a revival in sugar prices has legs, with Sucden Financial, for instance, saying price spreads suggest that “the structure in the markets is showing excess nearby supply”.

 

The trading house also said that “another bearish aspect is that Brazilian producers were reported by Archer Consulting to be only 58% priced on their exports at this stage of the campaign, the lowest level in eight years.

 

“This would mean that there is much selling still to be done should prices rally from here, and we saw an indication this week that 12 cents seems to be the target.”

 

 

 

Back in Chicago, grains extended their recovery too, with soybeans for November, for instance, up 2.0% at $8.99 a bushel, gaining support again from the firmness in soyoil.

 

Furthermore, Chinese import data for July were viewed as promising, at 8.64m tonnes, up 8% year on year.

 

“This is the highest amount of imports since August 2018 and a sign that crush margins are showing some improvement,” said Benson Quinn Commodities.

 

‘Lowest since at least 2008’

And there are growing worries over US dryness, with Maxar saying that “subsoil moisture levels have declined further across most of the Corn Belt over the past week”, with particular deficits across Iowa, Illinois, Indiana, and Ohio.

 

“Subsoil moisture in Illinois is the lowest for this date since 2012 and in Indiana is the lowest for this date since at least 2008.”

 

Some see forecasts as unhelpful to crops too, with Benson Quinn Commodities saying that “current forecasts indicate that the eastern Midwest will remain dry the middle of August.

 

“This period of dryness is impacting pollination on the late planted corn and limiting potential for the entire soybean crop in this region. Temperatures are expected to rise as the ridge shifts east.”

 

‘Poor’ sales

Indeed, corn futures for December gained 1.2% too, to $4.18 ¼ a bushel, back above their 100-day moving average.

 

That said, it should be noted that Thursday’s US Drought Monitor was hardly so worrying, showing 0.0% of Illinois, Indiana and Iowa in drought, albeit with a growing area rated abnormally dry, while some observers saw a less worrying spin on the weather outlook.

 

Maxar said that while “rainfall is expected to remain limited across the north central and eastern Midwest through the weekend… models have begun to trend wetter across these areas for next week, which may allow for some improvements in soil moisture”.

 

Furthermore, US export sales data were hardly encouraging, at 42,600 tonnes for this season, and 197,000 tonnes for next, compared with expectations of 100,000-300,000 tonnes and 200,000-600,000 tonnes respectively.

 

For that matter, soybean export sales for last week, at 101,700 for old crop and 318,300 tonnes for new, were also deemed “poor” by Terry Reilly at Futures International, if falling within the ranges of market expectations of 0-300,000 tonnes and 100,000-400,000 tonnes respectively.

 

‘Shuffling of investments’

There looked like plenty going on behind the market to make fundamentals look only part of the story on Thursday.

 

Karl Setzer at AgriVisor talked of shifting macromarket strategies, saying that “we are starting to see more concerns over the global economy, and this is causing a shuffling of investments, including the ones in commodities”.

 

However, there was particular talk of the coming of the USDA’s August Wasde briefing, on Monday, and plenty of talk of position closing, and in particular short covering ahead of a report which could have a huge impact on prices.

 

The key point is really what figure the USDA comes up with for US corn sowings, with many believing the current 91.7m-acre estimate as too high.

 

‘Staked their reputation’

Tregg Cronin at Halo Commodity Company said that “a question producers should be asking is what they will do with a limit down move and what they will do with a limit up move” after teh Wasde

 

“Both could be real possibilities.”

 

After all, taking trade forecasts for Wasde US corn acreage, as measured by a Bloomberg survey, “the high to low spread is 11m acres, or the size of Illinois. Imagine missing the USDA’s planted area number by a factor equivalent to Illinois!

 

“Soybeans aren’t a whole lot better with the high to low spread of 83.5m to 78.0m equal to the entire planted area in Indiana.”

 

Mr Cronin added that “consolidative trade has been the name of the game this week as we prep for the almighty August Wasde.

 

“Farmers, brokers, funds and end users have an incredible amount riding on Monday with many having staked their reputation on one outcome or another.”

 

‘Good amount’

Wheat futures, which are less dependent on the Wasde, with the US winter wheat harvest pretty much in the bag already, joined corn in decent gains.

 

After all, both will likely move in the same direction on Monday, with wheat futures having lowered their premium over the yellow grain to pick up feed demand.

 

Chicago wheat futures for September gained 2.1% to $4.98 ½ a bushel, closing back above their 20-day moving average for the first time since June.

 

Also on wheat bulls’ side was US export sales data of 487,700 tonnes, up 27% week on week, and towards the upper end of the range of market forecasts of 250,000-500,000 tonnes, and viewed as “a good amount” by Futures International’s Terry Reilly.

 

Firmer fibre

Also helped by export sales figure was cotton, which for December added 1.3% to 59.58 cents a pound in New York, recovering further from Monday’s three-year low.

 

Sales for the newly-started 2019-20 reached 179,500 running bales, including 60,100 running bales in Chinese custom, with 272,700 running bales of actual exports, data Louis Rose at Rose Commodity Group termed “neutral to somewhat supportive at current trading levels”.

 

A big question is whether the fall to the current trading levels has encouraged bigger buying.

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