The bullish spirits alive in grain markets, as Agrimoney reported earlier, were rewarded in the end.
Sure, the upbeat sentiment did not spread too far into soft commodities where - despite ABN Amro’s talk of strong Asian demand for the likes of cocoa, coffee and sugar - New York arabica futures for March tumbled by 2.8% to 106.15 cents a pound.
The decline, which took the lot back below its 200-day moving average, was attributed in part to profit-taking on recent gains.
ADM Investor Services said overnight that “although it remains above all three major moving averages, coffee is showing signs of being near-term overbought and may pull back early this week”.
Furthermore, weather has turned in bears’ favour too, with the broker saying that “while there has been mostly dry weather over Brazil’s key arabica growing regions over the past few weeks, its negative impact… may be limited” on a 2020 harvest which will be a big one in the country’s cycle of alternate higher and lower crops.
“In addition, updated weather forecasts call for rainfall” in Brazil.
Maxar said that “heavy rains are to develop” for areas including east central areas of top arabica-growing state Minas Gerais, showers it said would be “favourable for soils and cherry growth” where they fall.
Selling has been encouraged too by the Commodity Futures Trading Commission data showing that hedge funds had already, in the week to last Tuesday, slashed their net short in arabica coffee futures and options, in fact at a record pace, limiting potential for price upside ahead from short-covering.
Nonetheless, in grains, investors were more upbeat, particularly in wheat, in which the Chicago March soft red winter wheat contract closed up 0.7% at $5.15 ¼ a bushel, closing back above its 40-day moving average.
CRM AgriCommodities flagged help from “renewed demand from major importing countries” for the grain, with Tunisia buying 75,000 tonnes of soft milling wheat at tender, as well as 92,000 tonnes of durum wheat and 50,000 tonnes of feed barley, optional origin.
Algeria has a, probably larger, tender still outstanding and, with French origin in pole position for a big chunk of it, Paris soft milling wheat for December added 1.3% to E180.25 a tonne, its best finish in nearly a month.
‘Temperatures are about to drop’
However, there are also some nascent worries over winterkill in the former Soviet Union.
“Traders are also keeping a close eye on the Black Sea region where temperatures are about to drop in the coming days, whilst snow is totally absent to protect the newly-planted winter crops,” CRM said.
Still, it should be noted that Maxar forecasts that this week “temperatures should remain warm in Ukraine, western Russia” for now, although seeing dryness, which “will remain in place across much of the wheat belt this week” as a crop threat.
Meanwhile, there remain some worries over US winter wheat too, with the USDA overnight reporting a 2-point fall week on week to 52% in the proportion of crop rated “good” or “excellent”, taking the rating 1 point below market expectations,.
That decline reflected in particular declines in the southern Plains hard red winter wheat region, where USDA scouts in Texas, for instance, reported that “poor emergence was reported in areas of the Southern Low Plains and the Cross Timbers due to cold temperatures”.
In Colorado, the USDA flagged a report that “spotty winter wheat emergence and thin stands in areas were a concern for producers”.
Kansas City hard red winter wheat for March outperformed its Chicago peer in adding 1.3% to $4.31 ¾ a bushel, closing a bit of its large and unusual discount.
Spring less popular than winter
Still, there was no such luck for Minneapolis spring wheat, which for March closed unchanged at $5.18 ¼ a bushel, allowing its premium to Chicago to shrink further.
December basis, Minneapolis spring wheat has opened up a rare discount, of more than $0.08, to its Chicago peer.
As to how long this lasts…
CHS Hedging, underlining that Minneapolis spring wheat is “currently trading below Chicago at this time”, added that “this relationship rarely holds for long”.
Still, some investors said that about the Kansas City fall too into a discount, which has lasted for eight months December basis.
Also among grains, Chicago corn futures for December (still the best-traded lot) added 0.6% to $3.70 a bushel, helped by their rival grain, but also by USDA data overnight showing that 76% of the US crop is now harvested.
That was 1 point below market expectations (besides being 16 points behind the typical pace).
There was also the pull from a strong US cash market, which has been supported in part by the slow harvest, and also the wetness of the crop which has meant extra drying time.
And only then if propane is available, which is by no means a given at the moment.
‘Margins have improved dramatically’
CHS Hedging noted help from the demand side too, saying that “corn basis continues to be propped up by the strong bids from the ethanol grind.
“Margins have improved dramatically so now the market waits to see if the sector will take delivery due to the lack of country movement.”
And even on exports, the US news may be getting less dismal.
“Corn inspections are running well behind last year’s pace, down 58.4%,” said Benson Quinn Commodities.
“But that number shrank slightly from last week’s 61.2% and a peak of 65.8% on week ending October 3.”
‘Weather leans negative’
Soybean futures for January, meanwhile, added a more modest 0.1% to $9.11 ½ a bushel, remaining a touch below their 100-day moving average.
A lack of progress on China-US trade talks was one headwind, with Richard Feltes at RJ O’Brien also noting that “weather leans negative” for prices, with an “active precipitation pattern continuing across South America through month-end”.
In fact, “managed funds are clearly less inclined to embrace a bullish soy bias amid prolonged US-China trade talks, favourable South American weather, the closing window for China to buy US soy” before Brazilian supplies appear, “and a series of lower lows and lower chart highs since mid-October”.
‘A buy on breaks’
On a more positive note, Terry Reilly at Futures International flagged that Chicago soybean “crush margins are near their highest level since early September basis January.
“Earlier this morning they were near $0.98 a bushel.”
Margins were supported by further buoyancy in soyoil, which for December gained 1.0% to 30.64 cents a pound, and on which Mr Feltes was more upbeat.
“We continue to view soyoil as a buy on breaks, given brisk India-China edible oil import demand, increasing global biodiesel mandates, prospects for early year Indonesian dryness,” which effects output of rival palm oil, “and down-trending US soy oil stocks.
“Additionally, domestic US soyoil demand remains brisk while US soyoil yield is tracking low.”
Earlier, palm oil for February ended up 1.0% at 2,622 ringgit a tonne in Kuala Lumpur.