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Evening markets: South America factors lift soymeal, coffee futures

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The soymeal rally keeps on going.

 

“Meal is still the pack leader,” said Benson Quinn Commodities, with prices of the feed ingredient boosted by worries over production of soybeans in Argentina.

 

In fact, the midday run of the GFS weather model showed some improvement, in terms of offering rain, “showing significant rains of 1-3 inches over 75% of central, eastern, and northern Argentina in the 6-10 day outlook,” said WxRisk.com.

 

‘I remain sceptical’

 

But faith in the model has been undermined by its recent record.

 

“I remain sceptical about the idea of a big rain showing up for any portion of central, eastern, or south central Argentina anytime over the next two weeks,” WxRisk.com said.

 

“There is no sign of the big rain showing up for Argentina all the next two weeks,” was the weather service’s conclusion.

 

And, looking shorter term, Radiant Solutions warned that a current “break in the heat should be short-lived, as above-normal temperatures should return to southern Argentina by tomorrow and should reach central Argentina by Thursday.

 

Soil moisture deficits are “expected to remain in place across most of the region”.

 

‘Drought has continued to worsen’

 

This when the dollar was offering support to prices of dollar-denominated exports anyway, in depreciating, falling back below 90 against a basket of currencies, and standing 0.5% lower in late deals.

 

And coming after a caution overnight from the US Department of Agriculture about Argentine soybean crop prospects, saying that “in Argentina’s main soybean production zone… drought has continued to worsen.

 

“November-January cumulative precipitation was one-fifth below its usual level,” the USDA said.

 

While most of the “overall condition of the Argentine soybean crop is still rated mostly fair”, helped by “dwindling” supplies of subsoil moisture, “soon, a majority of the crop will transition to the pivotal reproductive stages of flower blooming and pod formation.

 

“By that time, more rainfall will be critical. Yields for the earliest sown crops may already be diminished.”

 

‘Farmers have withheld sales’

 

Dr Michael Cordonnier, the respected analyst, was the latest to downgrade his forecast for Argentine soybean production, by 1m tonnes to 50m tonnes, taking the estimate further below the US Department of Agriculture’s 54.0m-tonne estimate.

 

Chicago futures in soymeal, a feed ingredient for which Argentina is particularly important, as Agrimoney explained earlier, ended up 1.7% at $365.20 a short ton for March delivery, the highest for a spot contract since July 2016, with an Argentine supply squeeze already kicking in.

 

The USDA noted in its briefing overnight that “Argentine soybean processors are having difficulty acquiring old-crop stocks,” sending the December crush to a four-year low.

 

“Farmers have withheld sales due to the enhanced value of their soybean stocks,” the department said, adding that “soybean prices look better later this year with a scheduled decline in export taxes and a depreciation of the peso”.

 

“The slowing supply pipeline prompted a sharp decline in the December crush to a 4-year low.

 

Soybeans themselves gained a more modest 0.9% to $10.11 ¾ a bushel for March delivery, a six month closing high.

 

‘Precipitation will remain very limited’

 

Wheat, meanwhile, could not sustain its rally at all, despite ideas of continued dryness in the key southern Plains hard red winter wheat area.

 

Chicago soft red winter wheat for March closed down 1.0% at $4.59 ¼ a bushel, while the Kansas City March hard red winter wheat lot ended down 0.6% at $4.74 ½ a bushel, having risen less in the last session.

 

Radiant Solutions said that while some of the south eastern Plains may receive precipitation

 

Over the next 10 days, some rainfall “will reach the south eastern Plains, but precipitation will remain very limited in the western Plains, maintaining drought conditions”, the weather service said.

 

‘Drought is intensifying’

 

The USDA had some comments on the US winter wheat crop too, noting that “with the last significant precipitation occurring about four months ago, drought in the southern Plains is intensifying, causing further deterioration in the condition of winter wheat.

 

“In Kansas and Oklahoma, topsoil moisture was noted as very short to short on 79% and 93% of acres, respectively.

 

“In Texas, a recent freeze combined with low moisture to damage small grain fields and reduce grazing opportunities for livestock.”

 

Extra plantings?

 

However, worries are growing not just over the impact of high prices in destroying demand for wheat, but in encouraging spring sowings too, (or potentially winter ones in the southern hemisphere).

 

Karl Setzer at MaxYield Co-operative noted that, while commentators had largely been merely debating the size of a drop in sowings for the 2018 harvest, “now analysts think we could see wheat acres increase.

 

“Some of these forecasts are for upwards of 1m more wheat acres than earlier predicted.”

 

“The general consensus is that these acres will be taken away from soybeans in the fringe areas.”

 

‘Plenty of sales to be made’

 

Corn stood between the two, declining, but by a modest 0.1% to $3.66 ¼ a bushel for March delivery, with ideas of heavy grower selling at higher values.

 

“Farmers are very interested in the areas of $3.70 a bushel for March futures and $4.00 a bushel for December futures,” CHS Hedging said, flagging expectations that “there are plenty of sales to be made at those levels if reached”.

 

In fact, production prospects are declining for corn in both Argentina and Brazil, with Michael Cordonnier cutting his Brazil output number by 2m tonnes to 86m tonnes, and the Argentina estimate by 1m tonnes to 50m tonnes.

 

Colombian coffee imports

 

Among soft commodities, market direction was also mixed, with New York cocoa, helped by the weaker dollar, managing a rebound of 1.4% to $2,036 a tonne for May delivery, recouping some of the last session’s losses.

 

And arabica coffee futures for May added 1.3% to 125.05 cents a pound.

 

Colombian roasters were revealed by Honduran coffee institute IHCafe to have begun importing low-grade arabica beans from the central American country for the first time, illustrating tightness in supply in the South American nation – albeit with this believed to surround low quality beans.

 

Colombia in 2015 lifted a ban on exporting low-grade coffee, and it is these so-called “pasilla” beans that are reported as coming in from Honduras.

 

Small deal

 

However, raw sugar futures for March settled down 1.3% at 13.44 cents a pound, after a delivery against the expiring London white sugar contract for March was said to be smaller than expected.

 

It turned out that ED&F Man took delivery of 36,600 tonnes of sugar against the March white sugar futures contract.

 

London white sugar for May ended down 0.2% at $360.20 a tonne.

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