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Evening markets: Softs take on baton of ag price recovery

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Ag commodity futures maintained upward direction, but that was largely down to softs rather than grains, which were dogged by inventory worries.

 

The Bcom ag subindex stood up 0.6% in late deals, remaining above its 10-day moving average (as well as other major moving averages), and taking to 15.0% its recovery from a mid-May, all-time low.

 

However, it was soft commodities which were doing most to keep the ag sector buoyant, and notably coffee, which for New York arabica beans soared 4.1% to 107.20 cents a pound in late trading, for September delivery.

 

This time, London robusta coffee futures joined in the rally, a bit, too adding 2.1% to $1,452 a tonne for September.

 

‘End of super-extended bear market’

The gains come amid talk of producers holding back on sales – not least at a time of holidays for many South American countries.

 

Trading volumes were higher than in the last couple of sessions, but remained less vigorous that those a week or two ago.

 

“The Brazil harvest is moving along at a slow pace and producers are trying to store the crop due to the current low prices,” Jack Scoville at Price Futures said.

 

“Reports indicate that the yields are not real strong and that the quality of the crop is poor due to extreme weather seen early in the growing season.”

 

He added too that “the charts are very positive, and we might finally be near the end of this super-extended bear market”.

 

‘Will we have enough?’

New York raw sugar made headway as well, by 1.2% to 12.62 cents a pound for October, in late deals, climbing back above its 50-day moving average.

 

Sucden Financial noted that here too, “producer selling has not been as aggressive as in the past two days”.

 

Furthermore, in India, it highlighted that “concerns may be arising from the very hot dry weather seen before the monsoons began, and by the late arrival of the rains which are running at almost 40% below the long-term average”.

 

Meanwhile, the corn rally is helping too, in limiting prospects for US ethanol production, and so US exports of the biofuel to Brazil – creating more demand for locally-made supplies, and making sugar compete harder through price for cane.

 

Brazil-based H Commcor noted “plants directing more sugarcane to the ethanol production to continue to meet the firm demand.

 

“With the American problems for ethanol production, it opens up the possibility of [Brazil’s] Centre South supplying the North-North East and exporting the product further. Will we have enough?”

 

‘Crop conditions are bullish’

As for corn itself, for September it stood up 0.7% at $4.55 a bushel in Chicago in late deals, with the new crop December lot up 0.4% at $4.59 a bushel, remaining in positive territory, but below earlier highs reached after the US Department of Agriculture crop progress report overnight.

 

This showed US corn, soybean and winter wheat condition below market expectations, with soybean sowings and the winter wheat harvest proceeding slower than had been thought too.

 

“Crop conditions are bullish,” said Terry Reilly at Futures International.

 

Dr Michael Cordonnier - who overnight cut hits forecast for US corn sowings to 85.3m acres and yield by 5 bushels per acre to 160 bushels per acre, cutting the harvest estimate to a little over 12bnb bushels – said that “the big thing for this year’s corn crop is how delayed it is, especially in the eastern Corn Belt.

 

“A lot of the eastern Corn Belt looks like the second week of May instead of the last week of June.

 

“Some the corn that has not yet emerged will not pollinate until later in August and it will be a challenge for the crop to mature before the first frost.”

 

‘Drier weather to prevail’

However, US weather is at least improving, with Maxar saying that “drier weather is finally expected to prevail across the southern Midwest over the next 10 days, with below-normal rainfall expected in southern Iowa, Missouri, central and southern Illinois, Indiana, and Ohio.

 

“Rainfall is only expected on 3 or 4 of the next 10 days in these areas and amounts are expected to be relatively light.

 

“Above normal temperatures across the Corn Belt over the next 10 days will finally accelerate growth of corn and soybeans.”

 

Benson Quinn Commodities said that “weather looks to favour a warmer, drier nearby environment which may offer resistance” to price gains.

 

Key data

Furthermore, overhanging the market is the prospect on Friday of the USDA’s annual Acreage report, which will give much-anticipated data on the official view of crop sowings after 2019’s historically slow spring planting season.

 

Friday will bring a quarterly US crop inventory report too, which itself has a reputation for causing price moves, and so often injects an air of caution ahead of it.

 

And this besides the day bringing first notice day for Chicago July grain contracts, and the last day of the month and quarter, by repute a period which encourages funds to withdraw cash.

 

‘Tall order’

“Surprisingly low” USDA data on corn and soybean area “would certainly reignite bullish enthusiasm,” said Richard Feltes at RJ O’Brien.

 

“But that’s a tall order” unless the USDA cuts corn area, as compared with forecasts made in March, “by more than 8m acres and soybeans by more than 2m acres”.

 

He added that the “most likely outcome is for continuation of range bound row crop markets at elevated price levels, awaiting further clarity on the likely US summer weather pattern”.

 

Chicago soybean futures for July (still the best-traded contract) eased, but not by much, standing down 0.1% at $9.08 ¼ a bushel.

 

The new crop November lot shed 0.2% to $9.30 ¾ a bushel.

 

‘Not overly alarming’

Chicago soft red winter wheat, meanwhile, edged up 0.1% to $5.42 ¾ a bushel for September, restrained a little bit too by a lack of reaction to continued talk of hot weather in Europe.

 

Paris wheat for December stood 0.3% lower at E187.25 a tonne.

 

German-based Commerzbank noted earlier that “it is in particular the drought in Canada and the heatwave in Western Europe that are pushing up prices.

 

“That said, there had previously been considerable rainfall in some areas – in Germany, for example – so the situation is not yet seen as overly alarming.

 

Furthermore, while “conditions are also too dry in parts of Russia, with the result that crop expectations are being downwardly adjusted… the country is still set to harvest its second-highest crop ever”.

 

‘Poor stands’

Back in New York, cotton futures for December gained 0.2% to 65.80 cents a pound.

 

While US cotton crop condition did improve week on week by 1 point to 50% good or excellent, an unchanged 41% reading in top growing state Texas did conceal some setbacks.

 

USDA scouts in Texas said: “Cotton progress was delayed across the Plains due to adverse weather conditions.

 

“Prevented planting and poor stands due to cool temperatures and severe storms have caused some Plains cotton producers to switch to alternative crops.”

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