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Evening markets: Reversal session proves more beneficial for grains than cotton

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March began a day late in Illinois.

 

At least, it took until March 2 for Chicago futures to exhibit the kind of buying more typically seen in the first session of the new month, with some improved volumes and late-strength common on such occasions too.

 

Sure, markets remained overshadowed by the worries over renewed cases of African swine fever (ASF), and the knock-on impact on reducing feed grain import needs.

 

Richard Feltes at RJ O’Brien noted earlier that “corn is pressured by rumours that China’s corn buying is over”.

 

Benson Quinn Commodities noted “inputs that are more current lean a touch negative, with China’s economic data feeling a touch soft, while the trade is also concerned that hog industry hasn’t completely gotten its arms around the ASF situation.

 

“The latter has been reflected in meal,” with soymeal futures falling again on the Dalian, as Agrimoney noted earlier.

 

‘Net drying will continue’

However, Chicago corn futures revived from negative territory to end up 1.3% at $5.45 a bushel for May, their first winning session in four, on buying seen fuelled by worries over Argentine dryness, and the wetness slowing Brazilian corn sowings.

 

“In Argentina, net drying will continue in most of the region through March 10,” said Steve Freed at ADM Investor Services.

 

Oild World noted “concern about detrimental weather in South America - crop stress and damage from dryness and heat in Argentina and, in contrast, unusually heavy rainfall, quality deterioration as well as harvest and export delays in Brazil”.

 

In fact, Argentine dryness is hardly a new issue – and seen by Maxar as a help in some cases anyway, in helping mature crops finish.

 

And while Imea did cut its forecast for corn sowings in Mato Grosso, Brazil’s biggest growing state, it was by less than 0.1% to 5.68m hectares.

 

‘More than enough uncertainties’

Still, a “backdrop of historically tight US corn and soybean carryout stocks-to-use ratios of 8% and 2.5% respectively suggests zero tolerance for either better-than-expected old crop demand or threats to new crop supply,” Mr Feltes said.

 

There were “more than enough… uncertainties” around to “keep managed fund ag longs engaged, domestic end-users nervous, farmers cautious sellers, and importers ready to extend coverage at the first sign of even tighter 2021-22 US corn/soybean stocks”.

 

Even if the bush telegraph was quiet on word of Chinese buyers of US corn (although there was talk of them buying Brazilian soybeans), Japan provided some consolation to keep alive ideas of ongoing demand at lower prices.

 

The US Department of Agriculture reported 175,000 tonnes of US corn sold to Japan - albeit for 2021-22.

 

Technical factors were also seen helping corn’s cause, after the May contract bounced off its 40-day moving average, which it has not closed below in six months.

 

‘Blistering pace continues’

 

Soybean futures for May gained 1.5% to $14.12 ½ a bushel, helped by many of the same factors as corn

 

John Walsh at Walsh Trading highlighted too USDA US crush data for January released overnight which came in at 196.5m bushels, “another” record high for a particular month, and only 0.1m bushels behind the high for any month.

 

“The blistering pace continues.”

 

Less helpful was a 2m-tonne upgrade to 132m tonnes in Dr Michael Cordonnier’s forecast for the Brazilian soybean harvest, but this figure was within the range of existing market estimates.

 

‘Poor winter wheat conditions’

Wheat, the top performer in early deals, remained so later on, adding 2.5% to $6.66 ¼ a bushel in Chicago for May soft red winter wheat, which spruced up its chart appeal in climbing back above 10-day, 20-day and 40-day moving averages, and showing an “outside day higher” pattern too.

 

(Ie trading beyond the range of the previous session and closing in positive territory.)

 

The gains were seen as fuelled by the worsened US winter wheat condition ratings released overnight for key hard red winter wheat-growing states.

 

“The wheat market moved higher on poor winter wheat conditions,” CHS Hedging said.

 

“US wheat futures took note of 2-3 point declines for much of the southern Plains hard red winter wheat crop,” said Benson Quinn Commodities.

 

Chart plus

Still, Kansas City hard red winter wheat itself rose by a relatively modest 1.9% to $6.35 ¼ a bushel, suggesting that more may have been involved in wheat complex strength to favour the more liquid world benchmark of Chicago wheat.

 

From a chart perspective, Terry Reilly at Futures International noted that “May Chicago, Kansas City and Minneapolis contracts traded below key moving averages overnight, but failed to generate additional selling pressure”.

 

There was also some reassessment around of the large deliveries noted against the expiring March hard red winter wheat contract – with note too of two strong stoppers, ie Wells Fargo and JP Morgan, seeming keen to pick up the wheat.

 

There remained too some talk of the unwinding of short wheat-long corn/soy spreads favouring Chicago wheat too.

 

‘Vulnerable to a more serious downside correction’

By contrast, if grains followed up a weak start to the week with winning session, cotton did the opposite, closing down 0.6% at 90.99 cents a pound in New York for May delivery.

 

ADM Investor Services said that while the fibre was “attempting a quick recovery from the reversal last week”, which included a limit-down close on Thursday, “the technical set-up is still bearish and the market seems vulnerable to a more serious downside correction”.

 

At Rose Commodity Group, Louis Rose said simply that “it is becoming increasingly obvious that daily trading is of the spec-on-spec variety as volatility increases.

 

“There really is little physical old crop cotton to hedge.”

 

Cotton’s decline was also seen as underlining its allegiance to equity markets, which suffered a bit of a negative session too on Wall Street, undermined by "bubble" concerns stoked by comments on US and European markets by Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission.

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