Agricultural commodities were overshadowed by shares this time.
Ags - trading on their defensive qualities, highlighted by talk of panic buying of foods - have outperformed stocks in the Covid-19 era.
But that reversed on Tuesday, as share market investors cheered the Federal Reserve’s commitment “to using its full range of tools to support households, businesses, and the US economy overall in this challenging time”, with growing expectations of Congress agreeing a fiscal support package too.
Wall Street’s S&P 500 share index stood up 6.9% in late deals, far outperforming a 0.9% gain in the Bcom ag subindex.
‘Fears of stiff competition’
Not that the ag complex was without its gainers.
But they tended to be those that have lagged of late, as the idea that the markets rout has reached at least a pause encouraged bargain hunting, and profit-taking on short bets.
Cotton futures, for instance, gained 1.4% to 52.89 cents a pound in New York for May delivery, recovering from a 13-year low for a spot contract set in the last session. (Click here for Agrimoney’s cotton market analysis from earlier in the day.)
As ADM Investor Services noted, “the market closed lower every day last week as fears of a global recession and fears of stiff competition with crude-based clothing helped to pressure.
“The coronavirus continues to spark concerns about global industrial activity and demand for cotton.”
Still, “52-cent cotton looks cheap and it is cheap”, said Ron Lee at McCleskey Cotton, if qualifying that statement with the observation that “we have seen 48, 45, 36 and even 28 cent cotton in our moderately brief career.
“Those were during the financial crisis of 2008-09 and before/after the terrorist attack of September 11.
“The answer to the question of where/how the coronavirus eventually stack up against those historic acts will tell the tale.
“Time has shown that once these things do pass, cotton prices eventually see historically high price levels and I can certainly make a case for that happening again once pent up demand reached restricted supply.”
Chicago soyoil, another contract which has suffered of late, gained 1.4% to finish at 26.55 cents a pound for May – now up 7.6% from a low last week which was its weakest since 2006.
The vegetable oil, used largely in making biodiesel, was helped by a 7.2% recovery in prices of gasoil, a diesel market benchmark.
And back in New York, raw sugar – which stood down 28% for March as of its low last week – was also in demand, adding 2.1% to 11.27 cents a pound.
Market specialist Czarnikow flagged a “combination of moderate consumer buying and algo activity” behind early support for the sweetener, but noted too the role of another theme which is playing an increasing role in ags as coronavirus, after hitting first China and then spreading through the West, now affects developing nations.
Many of these are big names in ags, such as India for sugar, and Brazil for sugar, coffee, soybeans etc.
Czarnikow, while flagged reports “of port closures in India over the next 20 days as people lockdown while the impact of the coronavirus there is assessed” flagged too “rumours that tighter controls may be following in Sao Paulo” – ie the top cane-growing state in Brazil.
This, though, with the proviso “that sugar and ethanol may receive some kind of ‘key service’ status to try and protect such an important industry to their economy”.
Whatever, “we may well see continuing support as encouragement is provided to end users that we have seen the lows for the time being at least”.
‘Threat of fresh supply bottlenecks’
Similarly, arabica coffee, which is some way ahead of sugar in the logistical hiccups story, soared a further 3.6% to a two month closing high of 125.60 cents a pound in New York for May delivery, as ideas mount of lockdowns and strikes in Brazil – albeit with some doubt over what is fact and what just rumour.
“There have already been concerns with a recent shortage of shipping containers in Brazil and in other major coffee producing nations, so the threat of fresh supply bottlenecks is unlikely to be diffused over the next few sessions,” ADM Investor Services said.
The May arabica contract is now up 22% in a week.
In Chicago, the idea of bargain buying spread to corn too, which gained 1.2% to $3.47 ¼ a bushel for May delivery.
A 2.8% gain to $0.93 per gallon in May ethanol futures, and 6.5% surge in RBOB gasoline, eased the pressure on corn, which is used in many countries, such as Brazil and the US, for making the biofuel.
Sure, talk remained over the dire margins for ethanol groups, and a Renewable Fuels Association estimate that some 2bn gallons in annualised ethanol production could be shuttered by the end of this week.
“That is about 13% of total US ethanol blended into gasoline for the year,” said Terry Reilly at Futures International adding that it is equivalent, in corn consumption terms, to “about 250m-300m bushels”.
Corn vs soybeans
Still, there are limits to how far corn prices will fall – especially at a time when the nascent US spring sowing season often brings an injection of risk premium.
“Futures seem to be consolidating with some traders thinking the US farmer could plant less corn and more soybeans if corn futures continue to slide,” said CHS Hedging.
There is talk of producer selling drying up at current levels too.
In fact, soybean futures lost some of their pre-eminence, adding a more modest 0.2% to $8.86 ¾ a bushel for May, caught between firm soyoil and a declining soymeal market.
The Chicago May soymeal lot shed 0.8% to $332.10 a short ton, amid ideas of an overheated market, given its gains even amid markets’ coronavirus convulsions of the past month.
Richard Feltes at RJ O’Brien said that soymeal had had an “extraordinary $40 rally” over the previous four sessions, “driven by Chinese crusher closures, the shutdown of crushers in Rondonoplis, Mato Grosso and fears of disruptions in Argentine loadings”.
However, this headway “looks particularly vulnerable when coronavirus fears abate and the Argentine soy harvest ramps up next month”.
Dr Michael Cordonnier meanwhile extended the round of downgrades to the Brazilian soybean harvest, trimming his estimate by 1m tonnes to 122m tonnes, after dryness hit yields in southern areas.
Wheat futures, like soymeal, felt a bit of gravity too, easing by 0.4% to $5.61 ½ a bushel in Chicago for May, as the talk of a demand pull spurred by consumer panic-buying, in the face of coronavirus lockdowns, lost some of its potency.
While the rouble recovered 1.2% against the dollar, cutting the competitiveness of Russian exports, that could be taken as a negative too for prices, in lowering the threat of Moscow imposing curbs on the country’s wheat shipments.
This when a stack of importers – including Algeria, Ethiopia, Syria, Taiwan and Turkey - are in the market.
‘Flooding is a concern’
Some commentators cited too as behind the fall in wheat prices US Department of Agriculture data overnight showing an improvement in the condition of crops in the US southern Plains hard red winter wheat belt.
That said, Kansas City hard red winter wheat itself edged 0.3% higher to $4.90 ¾ a bushel for May, gaining some help from an improvement in sentiment for hard wheats overall, with Minneapolis spring wheat for May up 0.9% at $5.35 a bushel.
Benson Quinn Commodities said that “the snowpack in the northern Plains”, the key US spring wheat growing area, “is finally starting to melt”, and “flooding is a concern” as farmers are preparing to plant – although problems are not expected to be as serious as last year.