The apparently somewhat indiscriminate selling in financial markets of the last session morphed into something more conventionally risk-off.
Not that this spared agricultural commodity futures from extending their pullback of the last session.
But there appeared something more conventional about early deals on Friday than the last session when, for instance, New York cotton futures for May locked limit down.
And given the interlocking of financial markets at the moment, as themes such as the reflation trade and the post-Covid economy trade play out, it does help to look wide for guidance.
Fitch Solutions said that grain “prices are likely to be buffeted in the coming weeks as risks persist from external market volatility”, besides from factors such as “uncertainty surrounding future Chinese import demand”, the progress of La Nina, and “the risks of government intervention in export markets”.
On Friday, the dollar rose by 0.5% against a basket of currencies as of 10:30 UK time (04:30 Chicago time), proving reluctant to fall below 90, so eroding the affordability of dollar-denominated assets – just when investors are fretting about US ag exports, after some soft weekly data released on Thursday.
US Treasury bonds, another haven investment, also found their feet, ticking higher in European trading, while risk assets such as shares and Brent crude eased – and bitcoin tumbled by 6%.
Ags were not doing as badly as that in early deals. Still, with the Bcom ag subindex standing 1.0% lower, selling was the order of the day.
And a notable day too calendar-wise, in terms of being the last trading session of February, with month-ends often associated in grain markets with profit-taking by funds - with late trading viewed as particularly vulnerable.
Also to factor in from the calendar was it being first notice day for Chicago March contracts – and at least offering some support on this score was a dearth of deliveries announced overnight, which could be taken as a sign of reluctance by owners of physical crop to sell, at least through futures.
There were no deliveries at all against Chicago March corn, soybeans or soft red winter wheat lots, with a modest 7 contracts for soymeal, and 89 for Kansas City hard red winter wheat.
‘Futures are overvalued’
In fact, Kansas City hard red winter wheat futures for May proved notably weak in early trading, shedding 1.4% to $6.43 ½ a bushel, while Chicago soft red winter wheat fell 1.1% to $6.68 ¼ a bushel, with more medium term factors also ranged against the grain.
The seasonal trade “suggests a lower futures trend into US spring weather and harvest,” said Steve Freed at ADM Investor Services.
“The seasonal suggests wheat futures are overvalued.”
CHS Hedging, meanwhile, noted “easing concerns of significant damage to the US winter wheat crop from the recent blast of super-chill”, although it will of course be a while yet before any accurate damage assessment can be made.
‘Justifies a little more correction’
Corn fell in line with wheat in Chicago, by 1.1% to $5.43 ¾ a bushel for May, and dropping below its 10-day and 20-day moving averages.
Tobin Gorey at Commonwealth Bank of Australia, noting that Thursday’s US export sales data , “disappointed the market”, underlined that “the corollary thinking is that prices at these higher levels are choking demand”.
“The weather worries in Argentina too have further receded,” he added, reporting that “weather forecasters now expect more rain in regions that had previously been on a worryingly dry trajectory” (although it has to be said that not all commentators are so optimistic).
Mr Feed said that “corn market bulls will have to deal with the seasonal slowdown in US corn export sales as South American corn exports accelerate in upcoming months”.
For Benson Quinn Commodities, “the fundamental story probably justifies a little more correction, maybe $0.15-0.20” from the close of some $5.50 a bushel to the May lot in the last session.
Soybean futures, meanwhile, for May shed 1.0% to $13.93 ¾ a bushel, surrendering the $14.00-a-bushel mark after three closes above it.
For much of the week, oilseeds have been the market stalwarts, with soyoil futures topping 50 cents a pound in Chicago for the first time since April 2013, and Winnipeg canola futures setting record highs.
However, with market sentiment in retreat, and month-end encouraging profit-taking, canola for May shed a further 0.6% to Can$730.50 a tonne, while Chicago May soyoil eased by 0.5% to 49.43 cents a pound.
For soybeans themselves, Mr Freed underlined “talk that Brazil April-May export prices are lower than US.
“There is also talk that China crushers may be slowing crush rate due to delayed Brazil soybean cargoes.
“This could reduce the chance of buying US.”
In New York, cotton futures for May fell in line with the theme of somewhat moderated falls, with the 0.7% drip to 89.03 cents a pound indeed far lower than the 4.3% plunge in the last session – which looked to cause significant chart damage too.
The May lot on Thursday traded over a range of nearly 6 cents, or 6%, and ended locked limit down at its intraday low, very much an “outside day, lower trade”.
Mr Gorey, reporting on cotton’s “stunning dive”, said that “such a loud snap of the bullish stick is likely to have ramifications of its own.
“The momentum playbook takes events like this one seriously.”
He added that “taking a step further back, we were perplexed by cotton reaching what are still high price levels. The market’s persistent rally, though, hinted at a hefty step up in demand that would leave season 2020 inventories much lower.”
There are also concerns over the extent of on-call cotton mills have bought – ie for which prices have yet to be fixed. Whether they will take advantage of the price fall yet, and help support values…