Agricultural commodities, helped by La Nina, enhanced their claim to be a bit of a contrarian bet.
Broader risk markets carried a somewhat uncertain feel, with Wall Street shares again struggling to keep hold of upward momentum, a factor attributed by some to concerns that the US tax cuts package approved by the Senate over the weekend had been watered down a little bit, but by others to just to, well, the season.
“Money flow can be an unexpected factor at a time where there is no dominant fundamental excitement,” said Chicago-based broker Allendale.
“US stock Indices may have given the first signal a correction is possible with the sharply higher trade on Monday with a near low session close,” although adding that this was “just an observation at this time”.
The Dow Jones industrial average share index stood down 0.1% in afternoon deals in New York, with broader ag markets weaker too, down 0.9% as measured by the Bcom, dragged lower by copper, among others, which hit a two-month low in London.
However, the Bcom ag subindex managed a gain, if only a small one, of 0.2%, but keeping it ahead of a clutch of moving averages, besides enhancing a touch the cushion against the near-all-time-low level reached at the close of August.
Headway was helped by a firm performance by the oilseeds segment, and in particular soymeal, the high protein feed processed from soybeans, which closed up 1.7% at $343.30 a short ton in Chicago for January delivery.
That was the contract’s highest finish in nearly five months, and took above 5% its gains of the past three sessions.
The prompt for the rally is the dryness in Argentina, the top soymeal exporter, where a dearth of rain is taking on a new dimension with the declaration by official Australian meteorologists of a La Nina, a weather pattern which has a history of leaving Argentine soybean crops deleteriously short of rain.
‘Crop stress can be anticipated’
Benson Quinn Commodities said that the weather outlook for the “next couple of weeks looks dry with warming temperatures, some temperatures excessively warm, for much of southern Brazil and Argentina.
“Some crop stress can be anticipated for beans and corn.
“Traders are talking about the possibility of lower yields which could potentially hold back Argentina’s soymeal exports,” CHS Hedging said.
Richard Feltes at RJ O’Brien reported “ongoing concern over La Nina-induced dryness across Argentina, which has posted 5.3-18.2% cuts in soybean yield in prior La Nina years”.
“The soymeal surge today may be driven in part by hand-to-mouth domestic meal users scrambling to extend forward coverage.”
Less buoyant oilseeds
Soybeans themselves for January ended up 1.0% at $10.08 ½ a bushel, ending back above the psychologically important $10-a-bushel mark for the first time in nearly two months.
However, soyoil for January could not match the gains elsewhere in the soy complex, ending up a modest 0.1% at 33.50 cents a pound, weighed by the poor performance overnight of palm oil, which touched a four-month low in Kuala Lumpur.
Elsewhere among oilseeds, canola, an oil heavy rather than meal-heavy crop, managed more modest gains in Winnipeg, adding 0.5% to Can$509.70 a tonne for January delivery, amid expectations too of an upgrade on Wednesday by Statistics Canada to its estimate of this year’s Canadian crop.
Paris rapeseed for February ended unchanged at E369.00 a tonne, despite a weaker euro, amid ideas of an improved European Union harvest next year.
Crop estimate revisions
Soybean futures also received some help from a 1m-tonne downgrade, to 110m tonnes, by Informa to its estimate for the Brazilian soybean,
That said, the figure was still above the 107.6m tonnes at which FC Stone on Monday pegged output, an upgrade of 1.5m tonnes.
Informa also cut its forecast for Brazil’s corn output in 2017-18 by 3m tonnes to 89m tonnes, after FC Stone lowered its estimate for the safrinha, or second, crop only to 63.5m tonnes.
That was “down from their previous estimate of 67.35m tonnes and significantly lower than last season’s 83.89m-tonne second crop”, CHS Hedging noted.
‘Demand picture has improved a bit…’
Still, despite the Argentine worries too, corn futures for March managed only a 0.1% gain to $3.53 ¾ a bushel.
Benson Quinn Commodities said that technical considerations for the corn market were not as strong as for corn, and rated them as “neutral to supportive.
“It looks like a range of $3.50-3.60 a bushel in the March contract will hold this market in the near term.
“The demand picture has improved a bit, but supplies will limit recoveries.”
Wheat futures, meanwhile, could not even manage to match corn’s headway, closing down 0.8% at $4.32 ¾ a bushel in Chicago for March delivery, amid the usual worry over large world supplies.
Indeed, Ikar raised its forecast for Russia’s 2017-18 wheat exports by 1.3m tonnes to a record 35.3m tonnes – taking the figure 2.3m tonnes above the USDA’s estimate.
Meanwhile, Informa raised by 300,000 tonnes to 18.0m tonnes its forecast for the Argentine harvest.
There was talk too of wheat being on the wrong end of long soy-short grain spreading,
Some soft commodities fared even worse, with New York cocoa for March settling down 3.5% at $1,932 per tonne, a three-month low, and in strong trading volumes.
“It looks like lower prices are coming as the new crop comes to market in West Africa,” said Jack Scoville at Price Futures, noting negative influences from charts too.
“There should be plenty of cocoa available to the market as the main harvest in West Africa has been active.
“Weather consultants think that the crops are in mostly good condition, and the condition is likely to stay good in La Nina brings increased rains to production areas.”
However, London robusta coffee for January jumped 2.0% to at $1,757 per tonne, if amid suspicion of spreading (or unwinding of spreads) with New York arabica coffee, which for January ended down 0.9% at 127.40 per pound.
Open interest in robusta fell on Monday for a 20th successive session, to 192,044 lots, spurring talk of spreads being unwound.
“Arabica coffee price is continuing its ‘two steps forwards, one step back’ approach and has so far failed to settle in any permanent fashion above the 130-cents-per-pound mark,” Commerzbank said.
“The robusta price has been hovering around the $1,750-per-tonne mark in recent days, which should mean that the massive downslide observed since the summer has come to an end.
“After all, the expectation of a high robusta crop in Vietnam, where harvesting has just begun, and the prospect of a significantly better robusta crop in Brazil next year are already priced in.”
Indeed, if coffee exports from Brazil and Vietnam “remain weak in the next few months, this should give prices at least something of a boost”.