How will ag markets cope without their China fix?
Not only will Wednesday bring month-end and quarter-end, times associated with fund portfolio revamps, and the quarterly US grains stocks reports which give a rare insight into demand (and have a history of causing prices volatility).
It also brings the last day before China’s Golden Week holiday, which many investors mull may represent a bit of a watershed.
It will mean an end to the pre-festive stockpiling which has fuelled the extent of ag import purchases by China.
And after the holiday there are concerns that China may turn more of its buying focus on South America, as it looks into orders for early 2021, when Brazil begins its period of seasonal dominance in soybean exports, for instance.
There are other causes for concern too.
Benson Quinn Commodities, mulling that already “Chinese traders are likely headed back home to see the folks”, noted that the country “gives workers extended holidays to allow for lengthy travel times and to encourage vacations that redistribute wealth into wider areas of the country.
“That may lead to other issues with Covid again,” offering a risk of spreading the disease far and wide.
Still, more immediately, the impetus for ag prices worldwide from rising values on Chinese exchanges has shown signs of tiring, with values on the Dalian stabilising on Tuesday, or heading into reverse.
While Dalian corn futures for January managed headway on Tuesday, it was by a marginal 0.1% to 2.459 yuan a tonne, in weak volumes.
Soybean futures for January, by contrast, tumbled by 2.0% to 4,412 yuan a tonne, in decent volumes, stopping just above their 50-day moving average.
Other contracts were also a bit under the weather, with January soymeal ending down 0.5% at 3,077 yuan a tonne, January soyoil down 0.3% at 6,922 yuan a tonne, and January palm oil down 0.4% at 5,912 yuan a tonne.
Zhengzhou rapeseed meal for January shed 1.3% to 2,340 yuan a tonne.
With the renminbi easing a touch too against the dollar, eroding the purchasing power of the Chinese currency, with the uncertainty over what Wednesday’s US data may bring, it all helped make for a soft start to ags on other markets.
Kuala Lumpur palm oil for December shed 0.9% to 2,798 ringgit a tonne as of 11:00 UK time (05:00 Chicago time), finding only temporary support from news earlier that Malaysia has imposed strict movement restrictions in parts of key producing area Sabah, to try to stem a fresh round of Covid-19 infections.
Some profit-taking on long positions was seen as spurring the pullback in futures.
In Chicago, rival vegetable oil soyoil for December shed 1.3% to 32.67 cents a pound, more than reversing its gains of the last session, although finding support at its 100-day moving average just below.
Soymeal for December easing 0.1% to $333.50 a short ton, despite talk of downtime at Brazilian plants thanks to a lack of raw material to crush, after an overenthusiastic export campaign by the South American country.
Karl Setzer at AgriVisor flagged reports “that Brazil has idled seven of its crush plants due to low soybean availability.
“This is not uncommon, but usually happens later in the marketing year just prior to the new crop harvest.”
And against that backdrop, soybeans themselves fell too, by 0.4% to $9.92 ¾ a bushel for November, little helped either by an unexpected 1-point improvement, to 64% “good” or “excellent”, in the US Department of Agriculture’s weekly rating of the domestic crop, as released overnight.
The reading for top growing state Illinois rose by 1 point to a lofty 72%, although that in second-ranked Iowa fell by a further 1 point to 47% good or excellent, remaining depressed by the impact of dryness and last month’s derecho storm.
While crop ratings take a lower profile as harvest progresses, in favour of actual results off the combine, much talk has been of better-than-expected yields, as RJ O’Brien flagged on Monday.
And as far as the harvest goes, at 20% complete as of Sunday, that is running ahead of market expectations too, the USDA data overnight showed.
Grain prices ease
For corn, the USDA data were less helpful to bears, with the condition rating holding at 61% good or excellent, as investors had expected, and the harvest, at 15% complete, 2 points behind the expected pace, and slightly slower than average too.
Still, prices for the key December lot fell by 0.6% to $3.64 ½ a bushel, reversing gains of the last session, amid a lack of the spreading against soybeans which fuelled that increase.
It was also not so helpful for corn that rival grain wheat, which had helped pull it higher last time, cracked a bit in early Tuesday trading, shedding 0.2% to $5.49 ¼ a bushel for December delivery.
Concerns over dryness in Russia, credited with spurring gains in the last session, remain in focus.
“if the rains have arrived in western and central Europe, the water deficit remains in Russia with fears about the sowing of winter wheat in progress,” Agritel said.
… however, the worries may have eased a touch.
“Weather forecasters have extended the reach of rain beyond eastern Ukraine into Russia’s southern region,” said Tobin Gorey at Commonwealth Bank of Australia.
“Should the rain be realised that would be quite an evolution in the outlook.”
US winter wheat sowings progress, at 35%, was bang in line with expectations, although there remain concerns over dryness here too, particularly in the Plains hard red winter wheat-growing area.
Kansas City hard red winter wheat for December eased a more modest 0.1% to $4.82 ¼ a bushel.