Tyres screeched, as markets performed u-turns in the second session – although an important ag one missed out.
If the last session was marked by mounting coronavirus nerves, and panic at the panic buying in food, this one had a different theme, after the US central bank went nuclear in its attack on the economic and financial fallout of Covid-19.
The Federal Reserve said it was “committed to using its full range of tools to support households, businesses, and the US economy overall in this challenging time”.
That amounted to what Invesco termed “one of the most aggressive monetary easing programmes in the history of central banking”.
On markets, it was enough to bring the smell of burning rubber as investors pivoted 180 degrees.
Those assets which struggled last time, such as shares (the S&P 500 closed down 2.9% overnight) gained, with Hong Kong stocks ending up 4.5%, and Tokyo ones 7.1%. London’s FTSE 100 added 3.9% in early trading.
Brent crude jumped 5.3% to $28.46 a barrel as of 10:15 UK time (04:15 Chicago time), nearly $4 a barrel above its 17-year low reached last Wednesday.
Gasoil - a key indicator for biodiesel, and hence ags such as palm oil and soyoil used to make it - rose by 7.8%.
RBOB gasoline, watched by ethanol investors, soared 19.3%.
Against that backdrop, it was not such a surprise that palm oil futures for June soared by 2.7% to 2,351 ringgit a tonne in Kuala Lumpur - looking for their first close above their 20-day moving average (on a continuous chart) in two months.
Also helping palm oil was a decision by Sabah – the largest palm producing state in Malaysia, the second largest producing country – to suspend temporarily plantation operations in some areas after some workers tested positive for Covid-19.
All oil palm plantations in the districts of Tawau, Lahad Datu, and Kinabatangan will be suspended from March 25-31, with palm fruit processing factories to go offline from March 27-31.
In Chicago, rival vegetable oil soyoil added 1.0% to 26.40 cents a pound for May.
Fuel for thought
However, corn futures just could not find that winning feeling, despite the recovery in gasoline prices which is at the heart of the grain’s malaise – thanks to its use in many countries, but notably the US, in making ethanol.
To be fair, given how far RBOB has fallen, a 22% recovery does not amount to much these days – all of $0.09 a gallon.
The rise left it, at a little over $0.50 per gallon for April, still at a huge discount to ethanol, which ended the last session at $0.883 per gallon.
There remain ideas of grim margins in the US ethanol industry.
“This has caused many ethanol plants across the US to slow operations or simply halt operations, reducing corn demand,” said Karl Setzer at Agrivisor.
CHS Hedging noted, for instance, that US ethanol group Poet is looking “to suspend the purchasing of corn at their ethanol plants with the current fallout of demand for motor fuels as more states look to keep their folks safe at home”.
Impacts of this could surface later, on Wednesday, in weekly US output data for the biofuel.
“We look for the US weekly ethanol production to fall 20,000 barrels from the previous week to 1.035m barrels,” said Terry Reilly at Futures International.
And such volume decline naturally have implications for corn needs.
“Some industry officials believe this could reduce domestic corn demand by 250m-300m bushels,” Mr Setzer said.
‘The ugly step child’
Sure on the more positive side for prices, “south Brazil is dry and could reduce final 2020 corn crop,” said ADM Investor Services.
However, “few feel that this will help US export demand”.
Indeed, corn futures for May bucked the trend on extending their (small) losses of the last session, easing a further 0.2% to $3.42 ¾ a bushel.
“Corn is the ugly step child [of ags], struggling versus weak gas and ethanol demand,” Benson Quinn Commodities said.
‘Lowest crush since 2016’
Otherwise, the turnaround idea held, with soymeal futures for May shedding 1.1% to $330.00 a short ton as soyoil rose (and protecting Agrimoney’s call on the so-called soyoil share).
The fall in Chicago came as Dalian soymeal futures slowed their ascent, from 3.5% in the last session to 0.2% in this one for May delivery, with the contract ending at 2,034 yuan a tonne.
There has been much focus on Chinese supplies, with ideas that crusher shutdowns prompted by the Covid-19 outbreak have allowed stocks to decline, and remain somewhat in place.
Mr Reilly quoted Cofeed findings that “despite improving crush margins, Chinese crushers only operated at 39.8% of capacity last week.
“China crushed around 1.387m tonnes of soybeans last week, down 5.7% from the previous week, and the lowest since 2016.”
‘Struggling to get ships loaded’
Worries over a Brazilian port strike at Santos diminished too, also undermining prices of soybeans, which dipped by 0.8% to $8.77 ¼ a bushel in Chicago for May.
As Mr Setzer noted, “much of the strength in commodities recently has come from logistic issues, which have developed at the same time global demand has ramped up.
“This is especially the case on soybeans into China, where the country booked a reported 35-40 vessels from South America last week.
“While China has been buying South American soybeans, they are struggling to get them loaded in a timely manner which may cause a shifting in origination to the US.”
Also in the turnaround theme, wheat futures for May fell back 0.8% to $5.57 ¾ a bushel in Chicago.
This even as the dollar tumbled 1.2% against a basket of currencies, making US exports more competitive – including against Russian ones, with the rouble climbing by 0.7% to 78.7 per $1, helped by the oil price revival.
(That said, a strengthening rouble is not necessarily wholly positive for Chicago prices, in diminishing ideas of food inflation in Russia which could prompt wheat export curbs.)
‘Nearly as dire straits as oil’
Meanwhile, cotton futures, which set a near-11-year low in the last session, rebounded by 2.0% to 52.55 cents a pound in this one, as the Fed action revived hopes for demand, and with the dollar decline a boost to hopes for US exports too. (If mills elsewhere remain open for business.)
At US-based McCleskey Cotton, Ron Lee remanded of the poor outlook for the fibre, saying that “cotton may be in nearly as dire straits as oil” from a demand perspective.
“Nobody is going to go buy a new shirt or a set of sheets for the foreseeable future. Nobody.”
However, the cotton market does “have one benefit over oil in that we can certainly reduce acres even as they continue to pump unneeded oil out of the ground.
“And yes, we will certainly cut cotton acres this year”.