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Evening markets: Record China order sends corn futures soaring

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For once, corn futures played it by the book.

 

It looked an inauspicious session for Chicago March corn futures to overcome their vertigo and pot the kind of gains that supply and demand factors suggest.

 

There was after all, with it being the last day of January, the inherent risk of end-of-month profit-taking.

 

And the wind blowing from share markets was a chill one, with the S&P 500 index down 1.9% in late deals, after closes down 1.7% by Frankfurt stocks, and 1.8% by London equities.

 

Shares fall

But maybe the torrid conditions on share markets, attributed to a battle by retail investors against brokers, encouraged loose cash to head to other markets.

 

Certainly, the haven of gold stood up 0.6% at $1,850.30 per troy ounce in late trading, while Brent crude added 0.7% to $55.89 a barrel - and the Bcom ag subindex was up 1.3%, looking on track to close back above 50.0 points, and record gains of some 4% for this month.

 

And key to that Bcom ag strength was the performance of grains, and March corn’s close at $5.47 a bushel - up 2.3% for the session, and 13.0% for this month, as well as being the best finish for a spot contract since July 2013.

 

This time, the contract managed to take a step higher without encountering a drag from late-session profit taking.

 

China’s biggest purchase yet

Yet again, the cause for gains was provided by the US Department of Agriculture in terms of an announcement of a substantial sale of US corn to China.

 

This time, it was of 2.108m tonnes of the grain, for delivery this season (with a further 132,000 tonnes of soybeans on top) - the second largest order of US corn on data going back to 1977.

 

(The biggest was of 3.72m tonnes, to the USSR, in its dying days, in 1991.)

 

This followed on from the 1.70m-tonne Chinese purchase announced on Thursday, now demoted to seventh in the all-time league, with a further 213,600 tonnes sold to “unknown” on top.

 

The 1.36m-tonne sale announced on Tuesday to China (the 14th largest ever US corn deal when it was announced), and Wednesday’s 680,000-tonne Chinese order, now look like amateur stuff.

 

‘Should remain supportive’

That took to 5.85m tonnes the amount of US corn that China has ordered this week, plus potentially some of the 316,000 booked to “unknown”.

 

And this when the US, or indeed any other exporter, is hardly awash with the grain to sell, should USDA estimates for production and overall demand be anywhere near the mark.

 

“China demand vacuuming up global carryout stocks should remain supportive,” said Benson Quinn Commodities.

 

And there are ideas that this might not be the end.

 

The broker said that “talk more corn purchases are in the works continue to support CME prices”, with rumours that the total spree was set to reach 6m-8m tonnes.

 

Judged solely against this week, that could leave a further 2m tonnes to go.

 

Palm up

The buying spread to soybeans too, which gained 1.2% to $13.70 a bushel for March, back above 10-day and 20-day moving averages.

 

“Rationing is needed” in the oilseed, said Karl Setzer at AgriVisor, adding that “a reduction in old crop demand is needed this year, especially on soybeans”.

 

In fact, the oilseed outpaced the soy processing products this time to crimp crush margins, with March soyoil actually easing 0.1% to 44.62 cents a pound, retreating from its six-year closing high to the last session – despite a bravura performance by rival palm oil.

 

Kuala Lumpur palm oil for April soared 3.0% to 3,490 ringgit a tonne – but this after not trading on Thursday, a holiday in Malaysia, and having some catching up to do with soyoil, which had stretched its premium over palm close to 15% in the meantime.

 

Extra help for palm came from an announcement by Indonesia of a raised palm oil export tax and levy for February.

 

Importer demand

This time, wheat joined in the rally too, closing up 2.5% at $6.63 a bushel in Chicago for March delivery, rising back above its 10-day and 20-day moving averages.

 

From a technical perspective, there appeared some resistance earlier to wheat’s premium over corn falling close to $1.00 a bushel – down from $1.56 ½ a bushel, March basis, coming into 2021 – although it is expected that wheat will pick up some demand dislodged from corn.

 

And there remain signs of end-user orders, with Jordan seeking 120,000 tonnes of optional origin wheat, after Taiwan bought 85,340 tonnes of US wheat, and after Algeria’s 630,000-660,000 tonne order earlier in the week.

 

Wheat also remains one grain in which funds have not already built a heavy net long position.

 

While SovEcon raised by 1.6m tonnes to 37.9m tonnes its forecast for Russian wheat exports in 2020-21, the analysis group had previously prepared investors for this type of upgrade.

 

Production deficit

In New York, cotton this time followed its fellow row crops higher, adding 0.9% to 80.64 cents a pound for March, supported by corn and soybeans, rivals in the US spring sowings programme, but also helped by an increase by Cotlook to its forecast for the world cotton output deficit in 2020-21.

 

The shortfall was now forecast a 466,000 tonnes, up from an estimate of 325,000 tonnes last month, reflecting a reduced expectations for the US harvest, and increased ideas for demand in the Indian subcontinent and in Turkey.

 

The drawdown, “however, remains very modest in comparison to the addition to world stocks of nearly 4m tonnes that resulted from Covid-related disruption to supply chains during the 2019-20 marketing year”, Cotlook added.

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