Three Cs combined to give grain markets a rough ride – although they did at least fare better than many other assets, showing again some defensive qualities.
The first C was coronavirus, or Covid-19, which continued to overhang risk markets, sending shares down 3.6% in London, where the FTSE 100 index ended at its weakest in nearly four years, while Wall Street S&P 500 index stood 2.5% lower in afternoon deals.
The drops defied despite decent US employment data, showing the addition of 273,000 jobs in February, some 100,000 more than investors had expected.
‘Market on pins and needles’
The second C was China, which remains a obsession for ag markets in terms of whether and when it will start buying US ags in earnest, in line with promises in the countries’ phase one trade deal, but with another day going by without evidence of such trade.
In fact, CHS Hedging noted that “there is some chatter in the market that Chinese buyers are making inquiries for US cargoes of DDGs”, or distillers’ grains, but this talk which has been around for some days now, and risks going stale without some firm evidence of orders.
Benson Quinn Commodities reported that “so far there has been inquiries on the wheat and other US products, but no rumours or signs of sales, leaving the market on pins and needles hoping for new demand”.
This third C was crude oil, which tanked, after Russia refused to go along with deep production cuts proposed by the Opec cartel in a drive to support prices, which have been suffering anyway thanks to worries over economic damage caused by coronavirus.
Opec responded by removing all limits on its own production, prompting investors to send Brent crude down 9.4% at one stage to $45.28 a barrel, its lowest since June 2017.
Brent crude stood at $46.06 a barrel in late deals, down 7.9% on the day.
Prices of other energy contracts tumbled too, with RBOB gasoline down 7.9% and gasoil at 8.2%, although ethanol fared relatively well in easing just 2.7% for April.
The decline dented confidence in a range of commodities, but particularly those linked to energy.
In New York, raw sugar – linked to energy via its need to compete against ethanol for its share of cane in the likes of Brazil - settled down 3.0 at 13.02 cents a pound for May, a three-month closing low.
“The macro is taking precedence once again, and uncertainty abounds,” said Sucden Financial, while flagging some fundamental cause for support for sugar prices, given Brazilian wetness and Thai dryness “threats”.
Tobin Gorey at Commonwealth Bank of Australia noted that “the falls in sugar prices have been hefty, but the scale of the rally that preceded it was also hefty”.
In Chicago, soyoil – the key feedstock for US biodiesel plants - tumbled by 2.2% for May to 28.75 cents a pound.
Corn – the key feedstock for US ethanol manufacturers - ended down 1.5% at $3.76 a bushel for May.
Also negative was a change in the narrative on the White House stance on a court decision that raised doubts over the exemption of a swathe of refiners from blending targets mandated by US biofuels regulations.
‘Evidence is clear’
The Trump administration, which had appeared to accept the ruling, was now reported to be appealing it.
“The evidence is clear,” said Congresswoman Abby Finkenauer of Iowa, a Democrat.
“The US RFS [renewable fuel standard] will not be protected by the Trump administration no matter how many times he looks my friends and neighbours in the eye and makes a promise.”
Such factors overshadowed some decent demand news for US corn, with the US Department of Agriculture, through its daily alerts system, announcing the sale of 211,336 tonnes of US corn to an “unknown” import destination, and a further 234,688 tonnes to Japan.
‘Expectations for a slowdown’
Soybeans also ended lower, by 0.6% at $8.91 ¼ a bushel for May, although less so than soyoil, with the oilseed finding some support from the other soybean processing product – soymeal.
Soymeal for May ended up 0.4% at $305.10 a short ton, helped by worries over exports from top shipper Argentina, following the country’s tax raise on soy-complex exports, and with some crushers suffering financial hardships too.
Terry Reilly flagged support for Chicago prices from “expectations for a slowdown in Argentina soybean meal exports”.
Wheat, meanwhile, ended down 0.6% at $5.15 ¾ a bushel for May, despite the weakness in the dollar, which boosts US shipment prospects for the grain (as well as for other exports).
The dollar stood 0.8% down against a basket of currencies in late deals – although signally for wheat, the rouble was faring even worse, falling 1.4% against the greenback to a 14-month low, so boosting the competitiveness of shipments from Russia, the world’s top exporter.
Still, there looked evidence of significant fund selling too, given the performances of the two other big US wheat contracts – Kansas City hard red winter wheat and Minneapolis spring wheat - which are not as popular with speculators as Chicago soft red winter wheat.
May Kansas City futures ended unchanged at $4.46 ¼ a bushel, while the Minneapolis equivalent stood 0.1% down at $5.21 ¾ a bushel in late deals.
Funds have not been as upbeat in their positioning in these two contracts either, offering less ready ammunition for selling.
Back in New York, arabica coffee was also a major loser again, dropping 3.5% to 107.40 cents a pound, little helped by further weakness in the real, which slid 0.5% even against the tumbling dollar, and by the proximity of what is expected to be a large Brazilian harvest.
Brazil’s CNC producers group noted the role of speculators in the arabica market too, seeing them buyers early in the week as “the market broke resistance… for example, above 120 cents per pound”, which it ended above on Tuesday.
“In the last two sessions, however, [investors booked] profits and returned all gains.
“The deals were driven by speculators, who should continue to pressure prices due to the approach of the harvest in Brazil.”
The CNC added that “good rains have been observed in most of the producer belt in Brazil, which contributes to the filling of grains, mainly arabica”.
‘Selling out fast’
And New York cotton futures for May dropped 0.9% to 62.79 cents a pound.
Weak oil prices are a headwind for the fibre, in putting downward pressure on prices of artificial rivals such as polyester, as Abares noted earlier this week.
Still, the contract remained 2.1% higher for this week, and Plexus Cotton noted that “from a fundamental point of view cotton looks attractive at current levels.
“US cotton is selling out fast and most of it may be committed by mid-year.
“With India’s residual supply priced significantly higher, this could create a vacuum for prices to rise in.”