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Evening markets: Lifting of risk-off clouds allows ags to stage late recovery

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The risk-off feel on macro markets eased as the day went on, easing clouds over ag markets too.

 

Not that ags could match, say, the gains on Wall Street, where the S&P share index stood 1.2% higher in late deals, or the recovery in Brent crude, which stood 2.3% higher at $39.63 a barrel, some $2.40 above its intraday low.

 

However, the Bcom ag subindex pared its losses to stand down 0.2%, helped by a late revival in many contract.

 

Harvest acceleration

Chicago soft red winter wheat for July was one of those, again falling below the key $5.00-a-bushel mark in early deals, only to end higher, up 0.5% at $5.04 ¾ a bushel.

 

Not that it gained much help from Kansas City hard red winter wheat, which for July ended down 0.6% at $4.45 ¾ a bushel.

 

But then, it is feeling more in the way of pressure from a harvest which is expected to accelerate this week in the core southern Plains hard red winter wheat-growing region.

 

In the Plains, “drier weather in central and southern areas this week will continue to favour wheat drydown and harvesting,” said Maxar.

 

CHS Hedging said that “weather for both harvest activity and spring wheat growing look favourable for the week ahead. Kansas will be in full swing harvest by the end of the week”.

 

EU downgrade

And there some scope emerged for long Chicago-short Kansas City spreads too, with regulatory data released late on Friday showing managed money expanding its net short in Chicago while cutting it in Kansas City.

 

… to the extent that they were less short in Kansas City by 6,630 lots, the largest such gap in more than a year.

 

Chicago wheat, as the world benchmark, also took more succour from a cut by the European Commission’s Mars bureau to its forecast for the EU soft wheat yield this year of 0.12 tonnes per hectare to 5.60 tonnes per hectare, following dryness damage.

 

The French yield, cut by 0.47 to 6.58 tonnes per hectare, is now seen closer to the country’s dire 2016 result than last year’s strong 7.91 tonnes per hectare (on FranceAgriMer data).

 

Romania’s yield was downgraded by 0.38 tonnes per hectare to 3.93 tonnes per hectare, compared with the 4.80 tonnes per hectare achieved last year.

 

The dollar helped too in easing late in the session to show a dip of 0.6% against a basket of currencies, so boosting the competitiveness of dollar-denominated exports.

 

Stocks shrink

Also seeing particular late buying was soyoil, which having traded as low as 27.01 cents a pound in early trading, a drop of 1.8% on the day, ended the session at 27.74 cent a pound, a gain of 0.9%.

 

Helping the recovery were data from industry group Nopa showing the extent of US soyoil stocks as of the end of last month at 1.880bn pounds, well below the figure of 2.068bn pounds that investors had expected.

 

The figure was also down from the 2.111bn pounds a month before, although above the 1.581bn pounds reported for May 2019.

 

Smaller-than-expected crush

Soybeans themselves, while also staging a late revival, failed to make it back to positive territory, ending down 0.3% at $8.69 a bushel for July.

 

One factor ranged against them was the fact that the weak soyoil stocks figure was a reflection of a lower-than-forecast US crush last month, of 169.584m bushels, down from 171.754m bushels recorded in April.

 

The figure was also below the figure of 173.071m bushels that investors had expected, if the highest May reading on record.

 

US soybean exports last week, of 376,323 tonnes, were also hardly much to write home about, although within the range of 300,000-500,000 tonnes that investors had expected.

 

On a more positive note, the US Department of Agriculture did report the sale of 390,000 tonnes of US soybeans to China, confirming talk which had been around on Friday.

 

Still, “more is going to be needed as both sides look to meet phase one trade deal commitments,” said CHS Hedging. The weak Brazilian real played against soybean bulls too.

 

‘Will further improve moisture’

Corn futures also staged a late revival, to close 0.2% lower at $3.29 ¼ a bushel for July delivery, having traded 1.4% down at one point.

 

Latest weather forecasts reduced he threat of dryness for Midwest crops.

 

“Rains in north western [Midwest] areas later this week will further improve moisture,” said Maxar, although adding that “dryness will expand further in south central areas”.

 

Terry Reilly at Futures International flagged expectations for “good weather for the US” overall, but added that “warmer and drier weather may stress some of the crop that missed rain across the far western Corn Belt”.

 

US corn exports last week at 910,495 tonnes weren’t great, coming in below expectations of 950,000-1.25m tonnes.

 

Still, there was also the extensive short in corn that funds have already built up to consider, raising questions over whether such a position is already top-heavy, while producer selling remains light too.

 

Real decline

Soft commodities did not have it quite so easy.

 

The Brazilian real was trading 1.7% lower even against the falling dollar in late deals, little helped by the view that the country has not tackled well the coronavirus pandemic, making it especially vulnerable to the second-wave talk that depressed many markets earlier.

 

Furthermore, there are expected that the Brazilian central bank to cut interest rates again on Wednesday, into record-low territory.

 

Against that backdrop, is was hard for dollar prices of assets in which Brazil is a big player to do anything except fall.

 

Coffee vs sugar

New York arabica coffee for September ended down 1.1% at 95.90 cents a pound, a nine-month closing low for a nearest-but-one contract, weighed too by a USDA forecast for world coffee stocks to end 2020-21 at a six-year high, reflecting the huge Brazilian crop currently being harvested.

 

As ADM Investor Services noted, “a very large Brazilian 2020-21 crop has weighed on coffee prices as it offset supply issues from other major producers”.

 

London robusta coffee for September shed 1.5% to $1,194 a tonne.

 

However, New York raw sugar did manage to find enough late headway to close up 0.7% at 12.13 cents a pound for the October lot, helped by the revival in oil markets,

 

ADM Investor Services noted how sugar futures had, even late last week, “held up relatively well… in the face of negative outside markets

 

“With fresh evidence to support a bearish global supply outlook, however, sugar will need to have a ‘risk on’ mood redevelop in global markets in order to find its footing.”

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