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Evening markets: US frost fears keep grain bears at bay. Cocoa hits a six-month top

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Is it that time of year already?

 

After winds, dryness and heat have taken a toll on US crops, now it is the turn of frost to have a go.

 

“US frost risks for the middle of next week are growing,” said Refinitiv.

 

“The first significant cold front of the fall season in the US will feature a frost risk over portions of the upper Midwest and Plains states next week,” where temperatures “will cool down to 10-20 degrees Fahrenheit below normal”.

 

The greatest risks are in Minnesota, North Dakota, and western Nebraska, the group said adding that “if frost verifies, it will effectively end the growing season in those areas”.

 

‘Possibly ending the growing season’

According to some outlooks, cold temperatures will affect Canadian crops as early as this weekend, with World Weather saying that “Sunday will bring some frost to Alberta and north western Saskatchewan.

 

“Monday will generate similar conditions in north eastern Saskatchewan and northern Manitoba with a few light freezes possible in the northernmost crop areas

 

“Tuesday will bring frost and freezes to the eastern Canada Prairies, possibly ending the growing season for some areas and possibly pushing some frosty conditions into the north western [US] Plains.”

 

Two-year high

Not that there was a huge reaction on ag markets to such talk, but it did help many contracts recover early losses to post modest gains in late deals.

 

November canola futures revived from a dip to Can$498.50 a tonne earlier to stand at Can$502.60 a tonne in late deals in Winnipeg, up 0.3% on the day and on course for what would be a two-year closing high for a spot contract.

 

Strength in palm oil also helped, with the vegoil (a rival to canola/rapeseed oil) ending up 1.0% at 2,811 ringgit a tonne in Kuala Lumpur for November, a seven-month closing high for a benchmark contract.

 

And some softness in the Canadian dollar did too, boosting the competitiveness of the country’s exports – while a recovering greenback, up 0.4% against a basket of currencies, wrought the opposite effect on US dollar-denominated contracts.

 

‘Canadian crop concerns’

In fact, greenback-denominated spring wheat, of which Canada and the northern US Plains are a big growing area, stood 0.1% lower at $5.45 ½ a bushel in Minneapolis for December, despite itself managing to find some support from cold weather concerns.

 

“Minneapolis is higher on Canadian crop concerns from upcoming frost/freeze events,” Terry Reilly at Futures International said earlier.

 

But corn and soybeans managed to stand in positive territory in late deals, with some expecting the cold temperatures to extend into the Midest.

 

Karl Setzer highlighted that “colder than normal temperatures are expected across much of the Corn Belt going into next week, with chances of frost being given.

 

“While a major killing event is not expected, anything that might impact the crops is being monitored.”

 

‘Concern over shrinking yield prospects’

Corn futures for December stood up 0.2% at $3.58 ¾ a bushel in late trading, despite data showing US ethanol production last week falling by 9,000 barrels a day to 922,000 barrels a day, while stocks rose by 473,000 barrels to 20.88m barrels.

 

The data were “slightly bearish”, Mr Reilly said.

 

Still, besides the frost concern, there remains a focus on weakened crop prospects in Ukraine, a key exporter, where dryness has reduced yield potential.

 

“Ukraine corn export prices have advanced “$7-9 per tonne this week amid concern over shrinking yield prospects,” said Richard Feltes at RJ O’Brien.

 

Back in the US, broker Allendale issued a forecast for a US corn yield this year of 178.28 bushels per acre, and harvest of 14.980bn bushels, below official US Department of Agriculture numbers, but within the range of ideas the market has been talking about in the last week or two.

 

Soyoil support

For soybeans, the Allendale yield forecast of 51.93 bushels per acre, and harvest estimate of 14.980bn bushels, were well within the range of investor expectations too.

 

Still, soybean futures for November managed a 0.5% gain to $9.59 ¾ a bushel, helped by the frost fears, besides the firmness in vegetable oil markets.

 

Chicago soyoil for December stood up 1.6% at 33.39 cents a pound,

 

As for demand, Mr Reilly said that “we heard China bought one cargo of US soybeans out of the Gulf on Tuesday for November shipment”, a rumour which helped assuage some disappointment at the lack of further announcements of US export sales of the oilseed - or corn for that matter.

 

And thinking of China, the country faces the potential for more rain damage to its own crops, with two further typhoons, following Bavi last week, heading for the country’s north eastern corn belt.

 

“Total rainfall amounts of 4-8 inches (100-200 mm) are possible, particularly in northern and central North east China,” Maxar said, adding that “the heavy rain will further increase wetness and flooding and may lead to crop damage for corn and soybeans”.

 

Dollar pressure

Winter wheat, for which the US frost worries (and Chinese inundations) are not such a big deal, stood 1.3% lower at $5.56 ¾ a bushel in Chicago for December delivery.

 

That gave back many of the gains of the last session, attributed largely to beginning-of-the-month buying by funds, although also with dryness concerns in the likes of Argentina and Australia, as well as the US southern Plains, where winter wheat sowings for the 2021 harvest are imminent.

 

The dollar strength did not help, in a market where the competitiveness of wheat from different origins is being closely compared.

 

Paris soft wheat milling futures for December, backed by a 0.7% dip in the euro against the dollar, edged 0.3% higher to E188.00 a tonne.

 

‘Consolidation zone’

Dollar firmness was blamed in part for a decline in many soft commodities too, although that was not the whole story, with the Brazilian real gaining 0.5% even against the greenback, so improving the prices in dollar terms of assets in which the South American country is a key player.

 

That includes sugar, which for October delivery fell by 1.3% to 12.44 cents a pound in New York,

 

“Sugar prices have been able to hold their ground within their recent consolidation zone for more than a month now in spite of sizable 2020-21 production increases from Brazil and India,” said ADM Investor Services.

 

“However, their inability to benefit from strong carryover support from key outside markets and fresh bullish supply news may not bode well.”

 

‘Supply anxiety’

However, cocoa bucked the negative trend, adding 0.6% to 2,681 a tonne in New York for December delivery, a six-month closing high for a nearest-but-one contract.

 

“Drier-than-normal conditions over West African growing areas continue to be a source of strength for the market as they point towards lower production this season, and is likely to have a negative impact on early 2020-21 main crop production as well,” the broker said.

 

“There has been an uptick in precipitation over the Ivory Coast, but Ghana and Nigeria growing conditions remain a concern.”

 

It noted too that “the decision by current Ivory Coast President Ouattara to run for a third consecutive term in October’s Presidential election has led to simmering political tensions that have led to an uptick in near-term supply anxiety”.

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