Bears were the happier with the way that ag markets traded, but did not come away with all the spoils.
Certainly, they won a headline victory by pushing the Bcom ag subindex to a new all-time low, of 39.23, before it recovered a little ground to 39.32 in late deals, a loss of 0.6% for the day.
But while row crops, for instance, suffered notable declines, losses were not mandatory, with wheat picking up, showing that weak prices do offer some respite from weak prices, in encouraging demand.
Sure, the wheat complex gained some support from US Department of Agriculture data overnight showing that just 5% of the US spring wheat crop had been seeded as of Sunday, 17 points behind the average pace, reflecting dire conditions.
Still, Minneapolis spring wheat futures for July gained a modest 0.3% to $5.19 ½ a bushel.
It was the winter wheat contracts which outperformed, with Chicago soft red winter wheat for July adding 0.6% to $4.45 a bushel, Kansas City hard red winter wheat for July closing up 0.7% at $4.21 a bushel.
And this despite a surprise 2 point improvement, to 62%, in the proportion of US winter wheat rated “good” or “excellent” in the overnight USDA crop progress report.
“Still, concerns remain over the soft red winter wheat crop and conditions there will be watched closely,” Marex Spectron said.
There also remains a close eye on European Union and former Soviet Union weather, with some dryness around, although not enough yet really to raise eyebrows.
“Parts [of] Russia and the eastern EU remain dry, however there is time for that to improve,” Marex said.
“EU dryness merits some consideration,” said Benson Quinn Commodities, if adding that “it is too early to have significant impact”.
But, back to the demand theme, there remained comment over the strong US wheat export data for last week, as released on Monday (but which proved little able then to inject much vim into prices).
Karl Setzer at Citizens Elevator, talking of a “spike in demand we have seen in wheat”, highlighted that “weekly export loadings in yesterday’s report showed a yearly high of 811,000 tonnes”.
On the US domestic front, “We are also hearing reports of Texas feedlots inquiring on wheat purchases,” he said.
And little wonder when the premium of Kansas City hard red winter wheat to Chicago corn, July basis, fell on Monday to $0.52 ¾ a bushel at one point, down from a high of $2.24 ¾ a bushel last summer.
“Wheat is simply undervalued in today’s market which is bringing about speculative buying which is what all commodities need,” Mr Setzer said.
‘Notable short covering’
Among soft commodities, there was some hope that a tumble in arabica coffee prices might be past its worst, as the New York July contract settled up 0.4% at 93.25 cents a pound.
This after last week falling below 90 cents a pound for the first time since September 2005, on a nearest-but-one contract basis.
ADM Investor Services said that while “Brazilian old-crop supply will continue to pressure the market over the near-term, coffee is showing some early signs that a longer-term low may be in.
“There was some notable pre-weekend short covering seen as prices have fallen below production costs for Central American growers.”
Furthermore, Brazil’s real helped by gaining 0.4% against the dollar, boosting the value in dollar terms of assets in which the South American country is a big player.
Meanwhile, “there is dry weather forecast for Brazil’s key arabica-growing Minas Gerais region through the upcoming weekend,” ADM Investor Services noted.
“With Brazil’s harvest not expected to reach full speed until next month, this dry spell could have a negative impact on their upcoming 2019-20 ‘off-year’ crop.”
Not, it has to be said, that all commentators are quite so upbeat, with I&M Smith saying that “the coffee markets remain devoid of any striking supportive fundamental news for the present”.
The merchant noted bearish sentiment continuing to be fuelled by the prospects of the pending new Brazil coffee crop, while many have in mind the weight of unsold coffee stocks that are still to come from the Central Americans and Vietnam.
“These coffees over and above the new crop coffees that are due from Peru and the slightly delayed mitaca crop from Colombia, which shall start to impact in the coming month.”
‘Another attempt at 13 cents’
In New York, raw sugar rose too, by 1.0% to 12.90 cents a pound, also helped by the real, but also by firmness in crude oil, which hit its highest price since November, spurred by a tightening by the US of sanctions against Iran.
(Crude helps sugar by supporting prices of ethanol, which competes with the sweetener for cane in the likes of Brazil.)
“With higher crude prices higher and supportive of sugar, we should see another attempt at 13 cents soon,” said Sucden Financial earlier in the day.
Conab reported that Brazilian sugar output totalled 31.35m tonnes in 2018-19, versus 37.86m tonnes in 2017-18, although the market is now focused more on the newly-started 2019-20 season.
‘Fully priced in’
Still, downward was the default direction for ags, including in New York cotton futures for July, which settled down 0.7% at 77.91 cents a pound, undermined by news that China is to sell 1m tonnes of the fibre from its state reserve, besides by decent US crop prospects so far.
Cotton is the only one of the 10 crops monitored by the USDA for its weekly crop progress reports to show sowings in line with the average pace so far, at 9% complete.
Furthermore, rains in Texas, the top cotton growing state, are viewed as favourable for early crop growth, rather than being excessive as in eg spring wheat areas.
The cotton market “may be close to have fully priced-in the strong demand tone from China and the recent much more positive tone of the global economy,” said ADM Investor Services, highlighting that investors have been “anticipating a jump in demand from China”.
In Chicago, corn futures for July ended down 1.0% at $3.60 ¼ a bushel, a seven-month closing low for a nearest-but-one contract, as concerns over a weak pace of US plantings so far, as revealed by USDA data, were trumped by expectations of improving sowing weather ahead.
“Drier weather across most of the Midwest over the next few days should allow planting to make better progress,” Radiant Solutions said, if adding that “rain this weekend and next week will likely stall planting again”.
At Futures International, Terry Reilly said that “although current weather models promote wet conditions to remain in place for central and upper Midwest, the lower Midwest and Delta have a nice window of good planting weather through the rest of April”.
Citizens Elevators’ Karl Setzer said that while USDA data overnight showed “planting rates on corn and soybeans were on the low side of normal… given current weather outlooks we should see considerable progress this week”.
“The opening of a planting window in the next couple of weeks was a major factor” in the price decline, added Marex Spectron.
“The funds have continued to pile into the short side of corn and for the time being there isn’t a good reason for them to change their mind with the large stocks the US carries.”
At RJ O’Brien, Richard Feltes, noting a report that “producers’ bins are still stuffed with the yellow grain”, said that “producers holding out for a $0.20-a-bushel corn rally are gambling on summer crop adversity”, an outlook which weather service CWG “views as unlikely”.
‘Running out of time to be saved’
Soybean futures fell even further, by 1.7% to $8.75 ½ a bushel for July, the weakest finish in five months for a nearest-but-one contract.
Besides improved US planting weather, Marex noted the futures “traded through some key technical levels which fuelled further downside movement”.
Furthermore, the commodities house said that the “soy balance sheet is heavy and it is running out of time to be ‘saved’ by a Chinese trade deal”.
While late in the session, top White House economic advisor Larry Kudlow “was quoted as saying that he is ‘cautiously optimistic’ on a trade deal with China, this could only garner a $0.03-a-bushel bounce in the market, whereas once upon a time it would have reversed the day’s move.
“What is becoming clear is that specifics of a deal will be needed in order for the funds to look to get out of their growing short positions.”
‘Main reason for negativity…’
Without a deal, demand worries remain acute for soybeans, for which US exports last week came in at a lowly 382,000 tonnes last week, USDA data on Monday showed.
“The main reason for negativity in soybeans is from demand concerns,” Mr Setzer said.
He reported too that “Chinese crushers are only running at 30% of capacity on a lack of meal demand”, in the face of the African swine fever epidemic.
That bodes ill for China’s soybean imports, from the US or South America.