There was, as Richard Feltes at RJ O’Brien noted, some tendency among ag traders to “even up ahead of tomorrow’s crop report”.
That is, to lock in profits ahead of Tuesday’s US Department of Agriculture’s Wasde briefing on world crop supply and demand, a key monthly feature of the ag investors’ calendar – and one which some believe could cause relatively large price moves.
“Given the recent lack of fresh news in the market, this release could easily receive a larger reaction than expected,” said Karl Setzer at AgriVisor.
This despite ideas that the Wasde will not actually bring too much in the way of revisions.
“Trade on Tuesday is looking for only modest cuts of 28m bushels and 32m bushels in carryout 2019-20 US corn and soybean stocks respectively, versus the January report,” Mr Feltes said.
‘Short-covering by money managers’
The idea of evening up positions was a positive one for Chicago soymeal, after latest regulatory data showed managed money having built a record net (and gross) short in futures and options in the feed ingredient, and opening up the temptation for some position closing.
Benson Quinn Commodities said after the data that : “I would lean towards managed money being too short in… soymeal,” and in soybeans too.
And Terry Reilly at Futures International on the day noted “higher soymeal futures amid short-covering by money managers”.
Chicago soymeal futures for March settled up 0.7% at $291.40 a short ton.
At Global Commodity Analytics, Mike Zuzolo detected a "buy" signal in soymeal, which he saw with wheat as contract “to provide stability” in grain markets.
‘Wetness concerns, disease pressure’
“Weather fundamentals for the US wheat crop should provide support,” he added.
After all, as Maxar said, “a strong storm system will be building across the southern Plains, Delta, and Midwest through midweek, spreading snow across the south western Plains and north central Midwest, and heavy rain across the southern Midwest, Delta, and south eastern Plains.
“The heavy rains will increase wetness concerns and disease pressure for wheat,” the weather service said.
And there is some worry about cold damage too, although “currently, readings are expected to be just above winterkill thresholds by Thursday and Friday mornings across eastern Nebraska, south western Iowa, and north western Missouri”.
‘Funds may be too long’
Not that, going back to the position adjustment theme, that this could prevent a negative session for Chicago soft red winter wheat, which ended down 1.2% at $5.52 a bushel for March.
That took the contract back below its 40-day moving average, although the 50-day, at a little under $5.52 a bushel, continues to provide support.
Chicago wheat was the only one of the main grain contracts to see net fund buying in the week to last Tuesday, raising the managed money net long to a 17-month high, and so opening the way to a bit of a sell-off.
As Benson Quinn Commodities said, funds “may be too long Chicago wheat”.
The decline in the Chicago contract came despite a gain in Paris soft milling wheat futures for March, which closed up 0.8% at E194.75 a tonne, offered the comfort of French supplies being competitive on the world market (as noted earlier), with leading customer Algeria in town.
Algeria has tendered, with a February 10 deadline, for a nominal 50,000 tonnes of wheat, by will probably buy a multiple of that, with delivery windows from April 1-15 and April 16-30.
In fact, CRM AgriCommodities reported that “rumours are circulating that Algeria has purchased 500,000 tonnes of French wheat”.
Benson Quinn Commodities remained sanguine on Chicago wheat, noting “managed money boys’ love affair” with the contract, against a backdrop of weak US stocks of the class, as noted by US Wheat Associates last week.
‘Crop size edging higher’
Also helping wheat at least close off its lows in Chicago were US export data for last week which, at 523,713 tonnes, were towards the top end of market expectations of 300,000-600,000 tonnes, being being nearly 90,000 tonnes higher week on week.
US corn exports last week, at 769,390 tonnes, fitting the same description, coming in near the high end of the forecast range of 500,000-800,000 tonnes, and up more than 200,000 tonnes week on week.
Still, Chicago corn futures for March closed down too, by 0.5% at $3.81 ¾ a bushel, if staying above the key $3.80-a-bushel mark.
This against a backdrop of accelerating Brazilian safrinha corn sowings, which Imea placed at 38.9% in the top growing state of Mato Grosso as of Friday, up 17.0 point week on week.
“Remember that South American crop size is edging higher,” said Richard Feltes at RJ O’Brien, reminding too that the “US farmer fully intends to place as many idled 2019 acres back into 2020 production as possible”.
‘China will not default’
Similar dynamics were in play in the soybean market too but, supported by firmness in soymeal, soybean futures for March edging 0.3% higher to $8.84 ¼ a bushel.
That rise, was small, saw the lot close above its 10-day moving average for the first time since the first session of 2020.
And it found some support in talk that China is purchasing the oilseed – if not much from the US.
Soybean futures “were higher overnight China continued to buy soybeans from South America last week,” said Futures International’s Terry Reilly.
“Uncertainty over Chinese demand for vegetable oils from the spread of coronavirus remains a concern.
“However, state-run companies have been told to restart and/or increase oilseed crushings last week, leading some to believe China will not default on importing soybeans.”
‘Line in the sand’
Among soft commodities, cotton, which like soybeans is largely reliant on Chinese demand, also followed the oilseed higher, ending up 0.6% at 68.19 cents a pound.
“The trade in charge for now, as mills have been buying and fixing on dips,” said Plexus Cotton, noting latest “on call” data from the Commodity Futures Trading Commission, showing the amount of cotton for which the price is waiting to be fixed against futures.
“Although mills fixed 630,000 bales on March” week on week, according to last Thursday’s data, “there are still 6.42m bales in on-call sales open on March, May and July.
“The corresponding figure for on-call purchases is just 2.53m bales, which means there is net support of nearly 4m bales,” the trading house said.
From a technical perspective, there is still the 200-day moving average at 65.76 cents a pound for the March lot “as a line in the sand.
“As long as this important support level holds, speculators may not get too aggressive on the sell side, considering that they just got out of short positions in recent months.”
But New York arabica coffee fared better, adding 2.0% to 100.30 cents a pound for March, benefiting a little from the tendency to close positions, even if for coffee itself the Wasde is not a big deal.
However, there are also worries over too much of a good thing in terms of Brazilian rains.
“Heavy precipitation for the central portions of the coffee belt this week will continue to oversaturate soils and cause some flooding,” said Maxar.
Sure, “showers beyond Minas Gerais and Sao Paulo will continue to favour growth efforts,” but it is in the former state in particular that arabica production is centred.
Raw sugar also gained, adding 0.8% to 15.04 cents a pound for March to close above 15.00 cents a pound for the first time for a spot contract since January 2018.
Sucden Financial noted that “the early tone at the Dubai conference is cautiously bullish with both the representative from the Thai Sugar Millers Association and Cofco’s representative highlighting the expected reduction in Thai exports due to a lower crop as a result of drought and low cane prices for the farmers”.
Green Pool last week cut its forecast for this year’s Thai sugar production to 9.55m tonnes, from last year’s 14.57m tonnes.
Marex Spectron talked of even worse scenarios, saying that Thai “sugar production now talked below 9m tonnes.
“No one even has a real explanation for the collapse, so there is some concern that it could be an Asia-wide phenomenon, with talk of lower crops in Pakistan and the Philippines,” the commodities house said, although adding that “common sense says that it is simply the extraordinary local drought” that is behind the Thai woes.