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Morning markets: Ags stage recovery, although palm oil reluctant to join in


Crude oil got out of a different side of the bed this time.


Brent crude stood up 6.6% at $36.62 a barrel as of 09:50 UK time (04:50 Chicago time), as its collapse in the last session, and knock-on effects on other markets, provoked ideas of action by central banks and governments to shore up economies.


In the US, for instance, President Donald Trump heralded a “major” economic relief package, including possible payroll tax cuts.


And with oil’s recovery – albeit to levels which would, excluding the last session, represent four-year lows – other risk assets posted recoveries too, while the haven of gold dipped by 1.2% to $1,660 an ounce.


Turnaround Tuesday

In short, that Turnaround Tuesday theme beloved of Chicago traders – the idea that prices reverse on the second day of the week from a strong trend on the first – extended well beyond grains, although ground regained in early deals generally amounted to much less than that lost on Monday.


Shanghai shares closed up 1.8%, and Hong Kong ones 1.4%, while London’s FTSE 100 share index bounced 1.5% in early deals, and Frankfurt’s Dax 2.4%.


The dollar bounced 1.0% against a basket of currencies, trimming to 0.2% its losses this week - although a recovery which was not such a benefit for values of dollar-denominated commodities, in making them less affordable as exports.


Palm bucks trend

Among ags themselves, meanwhile, the picture was somewhat clouded by the day being a big one for agricultural data.


Which helps explain a sluggish performance by palm oil futures, against the broader market trend, with the Kuala Lumpur May contract up all of 1 ringgit at 2,333 ringgit a tonne.


The Malaysian Palm Oil Board pegged Malaysian palm oil stocks as of last month at 1.68m tonnes - a drop of 4.2% month on month and 45% year on year, the lowest figure since June 2017.


It was also below the 1.76m-tonne figure that investors had expected, according to a Reuters poll.


Exports struggle

However, the unexpected small inventory number relied on ideas of strong domestic demand, which some investors were not comfortable with.


Malaysia’s palm oil production last month, at 1.29m tonnes, came in some 8,500 tonnes above market expectations - while, more notably, exports of 1.08m tonnes were 131,000 tonnes (10.8%) shy of forecasts, and at a five-year low.


Nor Malaysian have exports, yet, recovered in March, although there are expectations of orders from pre-Ramadan stockpiling in Muslim countries.


Malaysian palm exports for the first 10 days of March are down 2.4% month on month, according to cargo surveyor ITS.


‘Limited coronavirus impact’

Still, rival soyoil held its head up nonetheless, rising 0.6% to 27.70 cents a pound in Chicago for May, recovering from a contract closing low.


That helped Chicago soybean futures for May add 0.8% to $8.77 a bushel, also gaining support from a decision by China’s ag ministry, in its monthly Casde report on domestic crop supply and production, to leave at 86.78m tonnes its estimate for soybean imports in 2019-20.


As Reuters put it, “China’s agriculture ministry said on Tuesday that the coronavirus disease is expected to have limited impact on the country’s soybean consumption and the world’s top consumer will bring in more cargoes from the United States in the coming year”.


‘Would be negative’

The market will also face the prospect later of Conab’s monthly briefing on Brazilian crop supply and demand.


Meanwhile, the US Department of Agriculture’s Wasde briefing later is not expected to make huge changes to balance sheet estimates.


“Most feel they should keep US and world soybean carryout unchanged from February,” said ADM Investor Services.


“Still some feel USDA could raise world crop production and lower US export.


“This would increase US 2019-20 soybean carryout which would be negative to already oversold futures.”


Helping hands

Nor are large changes expected in the Wasde for corn or wheat – beyond potential ideas, as ADM Investor Services said, that for both these crops too “still some feel USDA could raise world crop production and lower US exports”, which would be negative for prices.


Still, in early deals, Chicago corn for May added 0.7% to $3.75 ¼ a bushel.


While lower energy markets are somewhat negative for corn, used largely in the US in making ethanol, futures in ethanol itself have proved relatively resilient.


There is also some (small) silver lining, in demand terms, from the coronavirus outbreak.


As Benson Quinn Commodities noted, “Cargill says European demand for denatured ethanol for hand sanitiser has doubled month on month”.


‘Everyone loves a sale’

Also, there remains talk of China buying US distillers’ grains, a byproduct of grain (ie corn in the US) ethanol manufacture.


Benson Quinn Commodities noted “more talk of China shopping in the US DDGs and sorghum markets, again no confirmation of business.


“But everyone loves a sale and it appears many items are available at lower values currently.”


Indeed, recent price falls might have been seen as more positive for export order prospects, were it not, as Richard Feltes at RJ O’Brien noted, that “ample ag end user pricing has occurred already—


“I suspect additional buying is on hold until ag markets stabilise.”


Wheat spreads

For wheat, Benson Quinn noted too that “rumours continue to circulate that China may have secured a couple of cargos of spring wheat, but that talk is unsubstantiated”.


In fact, Minneapolis spring wheat for May added 0.6% to $5.23 ¾ a bushel, outperforming a touch Chicago soft red winter wheat for May, the world benchmark, which gained 0.4% to $5.21 a bushel.


That allowed spring wheat to secure a little its premium over its lower protein peer, which was regained last week, amid hedge funds’ retreat from ags, which saw them back out of many positions, including spreads.


Kansas City hard red winter wheat added 0.6% for May but, at $4.43 ¾ a bushel, remained at a notable, if atypical, discount to its Chicago peer.


Casde caution


In New York, cotton futures gained too, adding 1.0% for May to 61.80 cents a pound, despite some somewhat negative news from China’s Casde report.


That cut the forecast for domestic 2019-20 cotton production by 300,000 tonnes to 7.73m tonnes - with knock-on effects for estimates for imports, now seen at 1.70m tonnes, a downgrade of 100,000 tonnes, and stocks.


China’s cotton inventories were now forecast ending the season at 7.13m tonnes - actually an upgrade of 400,000 tonnes, and taking them above the year-before number.


Wasde stocks downgrade?


Still, the Wasde could prove more bullish.


As Louis Rose at Rose Commodity Group noted, the final US cotton ginning report of 2020 will be available to USDA economists revising the Wasde.


"Hence, US production could be estimated lower this month versus April, and it could be less than 20m bales.


"Overall, we think an outside estimate of tightening US carryout could be 500,000 bales, per a reduction in the production estimate and an increase in the export estimate."

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