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Evening markets: Soyoil futures plunge to lowest since 2006, as ag prices spiral lower

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In another time, ags might have started the week off OK.

 

With many questions in the market about demand, and how the coronavirus outbreak is affecting it, for ags there was some positive news around, with Algeria at the weekend tendering for more wheat (OK, durum this time) plus barley – only three days of purchasing 680,000 tonnes of soft wheat, in a sign that weak prices are attracted importers.

 

South Korea bought more corn, while late in the session, monthly US soybean crush data for February came in surprisingly strong – and showing a “record daily crush rate for the month of February”, Terry Reilly at Futures International noted.

 

‘Demand is robust’

At 166.3m bushels, the crush was 1.3m bushels above the figure the market expected, according to a Reuters poll, and well above the 154.5m bushels processed in February last year (albeit with an extra day for 2020, a leap year).

 

Soyoil stocks, at 1.92bn pounds were 115m bushels below market expectations, and down some 91m bushels month on month despite the larger-than-expected crush - also potentially a positive demand sign.

 

And while US soymeal exports last month slipped last month to 763,000 short tons, from 785,000 short tons a year earlier, there was a positive take to be had on that too.

 

Mr Reilly said: “Cumulative October-to-February soybean meal exports are running slightly below last year’s pace.

 

“This implies US domestic soybean meal demand is robust.”

 

Market bloodshed

US soybean export data for last week was not too bad either, at 449,653 tonnes for wheat, versus expectations of 350,000-600,000 tonnes, and for corn at 977,879 tonnes, around the upper end of market expectations of 700,000-1.05m tonnes.

 

Soybean exports for last week, at 436,358 tonnes, were not so impressive, although at least within the range of market forecasts of 400,000-750,000 tonnes.

 

However, the broader markets tide was modest definitely on its way out, and it took a monumental effort to defy them.

 

Wall Street’s S&P 500 share index stood down 10.5% in late deals, with Brent crude down 12.0% at $29.80 a barrel, dropping below $30 for the first time in four years.

 

‘Alarm factor’

“The coronavirus newsflow ‘alarm factor’ continues to rise,” said Terry Reilly at Futures International.

 

“We’re awaiting the tipping point signalling that the worst of the corona crisis has passed.

 

“We’re not there yet as restrictions escalate to deter social interaction.”

 

Karl Setzer at AgriVisor flagged “another wave of panic selling in the equity markets, which continues to weigh on the commodity market as well”.

 

Spring forward

Spring wheat in fact did manage headway, adding 0.3% to $5.09 ¾ a bushel in Minneapolis for May delivery.

 

The gain comes amid continued talk of Chinese interest in buying US spring wheat, besides data showing funds holding a close-to-record net short in the contract – and in their mindset of withdrawing from ags, especially where it can make a profit from doing so. (Closing short bets of course puts upward pressure on prices.)

 

But it was most definitely the exception, with Chicago soft red winter wheat, for instance, ending 1.6% down at $4.98 a bushel for May, a five-month closing low for a spot contract.

 

Despite evidence of importer interest in taking advantage of lower prices, there remains doubt over the ability of US supplies to win that much export business, given a boost to Russian competitiveness from a rouble which fell 3.1% against the dollar.

 

(That said, the dollar fell 0.7% overall against a basket of currencies, losing ground against the likes of the euro and the yen.)

 

Consumption worries

Corn suffered more substantial losses, shedding 2.7% to $3.54 ¾ a bushel for May delivery, and falling out of the bottom of its recent trading range to a six-month closing low on a spot contract basis.

 

Benson Quinn Commodities noted “talk corn could [fall] to the $3.40-a-bushel area as demand wanes”.

 

On export markets, “Argentine values remain around $0.40-a-bushel cheaper than US”.

 

Demand for ethanol, made in the US and increasingly in the likes of Brazil from corn, has been a particular worry, as weaker energy prices curtail producer margins, and reflect too ideas of weaker consumption volumes of fuels overall.

 

Lowest since 2006

Soybeans, meanwhile, ended 2.8% down at $8.21 ¾ a bushel for May, a 10-month closing low for a spot contract, despite the decent Nopa crush data, as soyoil succumbed to gravity created by weaker oil prices, with biodiesel a major use for vegetable oils.

 

Soyoil for May slumped 4.9% to 24.99 cents a pound, the weakest finish for a spot contract since October 2006.

 

Earlier, Kuala Lumpur palm oil for June ended down 2.8% at 2,220 ringgit per tonne, although that represented the weakest finish for a benchmark contract in a more modest five months.

 

Benson Quinn Commodities flagged the pressure from “lower energy prices”, while noting to the “record Brazilian crop” being harvested.

 

Meanwhile, US soybean export prices are “still $5.00 per tonne over Brazilian, US soymeal values $16 per tonne over Argentine”.

 

Demand downgrade

Nor did soft commodities escape the selldown, with New York raw sugar for May slumping by 5.2% to 11.09 cents a pound – the lowest for a spot contract in nigh on six months.

 

Besides the dent to demand prospects from the weakened outlook for ethanol demand, which sugar is linked to as thanks to its battle with the biofuel for its share of cane in the likes of Brazil, the sweetener suffered lowered expectations for food consumption too.

 

Czarnikow cut its 2020 sugar demand forecast by nearly 2m tonnes, now estimating that “overall sugar consumption will now barely increase this year”.

 

The downgrade was blamed on lockdowns prompted by the Covid-19 outbreak, flagging the “collapse in out-of-home food and drink consumption, and the difficulties faced in operating normal supply chains.”

 

While this will still mean a production shortfall in 2019-20, of 10.2m tonnes, Czarnikow forecast a 700,000-tonne surplus next season.

 

‘Hysteria’

Cotton, meanwhile, dropped by 2.8% to 58.80 cents a pound, a six-month closing low for a spot contract, undermined by its status as an industrial ag, and one which faces oil-based fibres as competitors – albeit, with strong US export data of late offering some support.

 

Louis Rose at Rose Commodity Group noted the dent to cotton prices from declines in “equity and financial markets on increased concerns - and in some cases, hysteria – regarding” the coronavirus.

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