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Evening markets: Grains struggle to exploit dollar tailwind

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The dollar said “go” to gains in agricultural commodity prices.

 

But investors, for the most part, said “no”, leaving the Bcom ag subindex down 0.4% in late deals, giving back some of its gains made in the last session – although remaining above its newly-rewon 100-day moving average.

 

The greenback fell 0.4% against a basket of currencies to set a 22-month low, undermined by ideas that US Treasury yields are particularly low when inflation expectations are factored in.

 

That was on the face of it supportive to prices of dollar-denominated ags, making them more affordable to buyers in other currencies.

 

However, gains were restricted largely to the oilseeds sector, as individual niggles barred many other contracts from harnessing the forex tailwind.

 

Brazilian imports

Take wheat, often responsive to dollar rates, but which stood 0.7% down at $5.30 ¾ a bushel in Chicago for September soft red winter wheat in late deals.

 

This despite some not bad US export sales data for last week, at 616,663 tonnes, above the range of market expectations of 300,000-600,000 tonnes, with those for soft red winter wheat particularly strong, at 146,025 tonnes.

 

Still, technical factors were blamed in part for the decline, with the September contract earlier again testing its 200-day moving average, at a bit over $5.36 a bushel, and finding it a step too far.

 

News that Brazil has imported Russian wheat was also viewed as a negative, with North America historically getting first refusal on the South American country’s orders, once Argentine supplies run dry.

 

“Trade sources have confirmed that two Russian cargos of wheat, 60,000 tonnes, have been shipped to Brazil this month,” said CHS Hedging, noting that “sales of additional cargoes are rumoured to have been consummated, but to this point are unconfirmed”.

 

Kansas City hard red winter wheat, the type often sold to Brazil, fell particularly hard, shedding 1.4% to $4.42 ¼ a bushel, with US exports of the class a bit light too, at 130,466 tonnes.

 

 

 

Rival grain corn at least managed to hold flat at $3.27 ½ a bushel for the September lot, although the December contract eased 0.1% to $3.34 ½ a bushel.

 

US export sales for last week were decent here too, at 2.33m tonnes for new crop, ahead of market expectations of at best 2.0m tonnes, although old crop sales were light, at 220,585 tonnes, below forecasts of 400,000-1.00m tonnes.

 

Still, as Benson Quinn Commodities noted, in the Midwest “favourable corn weather is noted for the next couple of weeks.

 

“The corn crop isn’t perfect, but it doesn’t have any issues you wouldn’t find in a typical year. The bulls are running out of time for a significant down grade of the existing crop.”

 

Maxar said that “rainfall over the next week should prevent drought coverage from expanding further across the Midwest and should ease drought in the south central Plain”.

 

Firm soy

Soybean futures fared best of Chicago’s big three in late deals, adding 0.7% to $9.05 ¼ a bushel for August delivery, with the September lot up 0.6% at $8.99 ½ a bushel.

 

Again, US export sales data for last week were decent, at 2.30m tonnes for new crop, although with the 365,169 tonnes of old crop sold a bit light.

 

But here, buying was helped by ideas that purchasers do not have much alternative, given elevated prices in Brazil, after an overenthusiastic sales programme there, and with the next harvest not due until early 2021 (while the US harvest is only weeks away).

 

‘Oversold its crop’

“The soybean market continues to be underpinned by recovering demand into China, and the notion that Brazil has oversold its crop,” said La Salle Group.

 

“Brazil bean basis remains firm, with offers near $1.40 over [Chicago futures] while US is competitive at $0.65.”

 

“Product basis in South America has firmed as well with an unprecedented rally in soyoil basis. Essentially it leaves US as sole supplier for the next several months.”

 

Although benign weather could yet “add additional bushels” to the US harvest “and could be the nexus for the next $0.30-0.40 a bushel break” in prices, the broker said that “ultimately, we are still looking for soybeans to earn their forward carry”.

 

Soyoil futures in fact eased by 0.2% to 29.88 cents a pound for August in late deals, despite a 2.0% surge to 2,708 ringgit overnight in Kuala Lumpur futures in rival palm oil, gains attributed to worries over the impact of inundations on South East Asian production.

 

‘Figures are bearish’

Cotton futures underperformed their fellow row crop, falling by 0.7% to 62.11 cents a pound for December delivery, after a poor set of US export sales data.

 

For upland cotton, the USDA announced sales of just 10,853 running bales for new crop, and a negative 13,084 running bales for 2019-20 (as ends this month), ie meaning cancellations exceeding new sales for last week.

 

If the worry among investors has been that only Chinese importers is buying US cotton exports, well, now even they have stepped back.

 

ADM Investor Service said that “traders are nervous with the China-US trade relations and if trade tensions escalate, traders are nervous that some US cotton on the books with China could get cancelled.”

 

“We think that the latest figures are bearish at current trading levels,” said Louis Rose At Rose Commodity Group, flagging too “heightened US-China tensions” which hardly bode well for the return of Chinese buyers.

 

He noted as well “recent showers across Texas” easing concerns over dryness damage to crops in the top US cotton-growing state.

 

Arabica vs robusta

Arabica coffee eased back to close down 0.8% at 107.50 cents a pound for September, in line with Commerzbank expectations, and little helped by a Brazilian real which weakened even against the dollar, shedding 1.4%.

 

That cuts the value in dollar terms of assets in which Brazil is a key player.

 

London robusta coffee for September eased by a more modest 0.5% to $1.350 a tonne, maintaining its outperformance over arabica, on ideas of more resilient demand for the bean, which is consumed largely at home, as opposed to arabica which relies far more on consumption at coffee bars.

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