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Morning markets: Buoyant cotton futures lead firmer start for ags


Tuesday started with a bit of a recovery theme, centred on cotton.


There was some talk that cotton futures had been ill-treated by their collapse again (although not quite limit-down this time) last Thursday, after soft US weekly export sales data.


That “big drop doesn’t make much sense”, said Plexus Cotton.


“The US cotton balance sheet continues to tighten, West Texas remains too dry, the economy is still rebounding” and shares, to which cotton as an industrial commodity tends to show more correlation than food ags, have been setting record highs on Wall Street.


While the 12.0m-acre forecast for cotton sowings that the US Department of Agriculture released last month “has the potential to produce a US crop of 17.0m-17.5m bales if we get a more or less normal growing season… as this season has shown, harvested acreage can drop dramatically if the weather doesn’t cooperate,” the merchant said.


“We ended up collecting only 8.7m of the 12.1m acres that were planted” for 2020-21.


‘The question is…’

For Plexus, “the question is whether current crop will continue to drag the board lower on technical weakness or whether December”, the key new crop futures contract, “will eventually step into the leadership role and pull the market out of its hole on constructive fundamentals?


“We believe in the latter, since December cannot afford to lose much more ground if it wants to hang on to its projected acreage.


The US balance sheet is tight and new crop is still uncertain at this point, as West Texas continues to wait for rain.


“It may take some patience, but we feel that the market will eventually turn the corner and move higher again.”


New crop gains premium

At Rose Commodity Group, Louis Rose flagged too that the key US growing area of “West Texas is expected to see little to no rainfall over the coming week”, even if noting as well some negative forces for prices.


Mr Rose noted setbacks from “strengthening US currency, the potential for significant-to-large 2021 domestic and international production, the potential for Pakistan to again buy cotton from India and weakening US export data”.


Still, with the dollar actually reversing course to ease 0.4% against a basket of currencies, and USDA data overnight showing a slightly slower start to Texas sowings this year than last, New York cotton futures for May jumped 2.2% to 79.56 cents a pound as of 10:45 UK time (04:45 Chicago time).


And the December lot did lead the way, adding 2.6% to 79.90 cents a pound, to take a premium against its old crop peer.


While temporarily gaining a premium over May in the past two sessions too, the December lot has not for a year closed as the more valuable contract.


‘Very tight stock level’

In Chicago, the recovery theme caught up soyoil, which added 1.1% to 53.39 cents a pound, regaining a little more of the ground lost during its last-March collapse, when it plunged 12.2% over four sessions.


Rival palm oil provided support by adding 1.8% to 3,806 ringgit a tonne, amid ideas that March data for Malaysian production and demand may not show as strong an increase in supplies has had been thought a couple of weeks ago.


Sure, the data are expected to show Malaysian palm oil output soaring 25% month on month to 1.38m tonnes, starting a seasonal upswing.


However, exports are forecast rising by 25% too, to 1.12m tonnes, according to a Reuters poll, which estimated that Malaysia’s palm oil stocks will show at 1.32m tonnes, up only 1.3% month on month.


“This suggests a very tight palm oil stock level as Malaysia’s March palm oil stock level has averaged 1.97m tonnes over the past 10 years,” said Ivy Ng, regional head of plantations research at CGS-CIMB Research.


Earlier, in key vegoil importer China, Dalian soyoil futures for May soared 2.0% to 8,744 yuan a tonne, now up 4.5% so far this month, while May palm oil gained 1.4% to 7,638 yuan a tonne, up 4.7% for April.


US importing soy?

Back in Chicago, soybeans for May gained 0.4% to $14.18 ¾ a bushel, offered some support by soyoil against some setbacks.


At ADM Investor Services, Steve Freed said that while “there is more talk of US old crop supplies tightening before harvest”, there is also “talk that South America is offering soybean for export below US prices”, as actually might be expected at this time of year, when Brazil’s soybean harvest is most of the way through.


Less predictable is that “there is also talk that 2-3 South America soybean cargos may have been sold into US east coast”, which would be a sign that the US soybean premium could be a little excessive.


‘Could provoke frost damage’

Still, on the more supportive side are worries over the EU crop of rival oilseed rapeseed, with Agritel noting worries over “the return of negative temperatures in some regions.


“That could provoke frost damage especially on rapeseed,” the analysis group said, adding that “on this product, the supplies’ outlook remains stretched due to poor crop conditions and reduced acreage with the two main producers - France and Germany”.


Strategie Grains cut by 205,000 tonnes, to 16.8m tonnes, its forecast for EU rapeseed production this year.


Chinese demand debate

As for Chicago corn, the May contract managed modest gains too, adding 0.3% to $5.54 ¾ a bushel, and looking for its first winning session of April.


USDA data overnight showed US corn sowings progress, at 2% as of Sunday, in line with historical levels.


More supportive were data late on Monday showing US corn exports last week at 1.91m tonnes, up from 1.72m tonnes the previous week.


But on the demand side there is more discussion over whether China will honour all its corn import purchases for 2020-21.


“At the present time China has 590m bushels of unshipped corn bookings with the US,” said Karl Setzer at AgriVisor, adding that “the concern is that China will cancel a portion of these as more inventory becomes available from other sources”.


Mr Freed said that current dynamics on Chinese orders of US corn “could suggest that 1.0m-2.0m tonnes of open unshipped corn sales could be rolled forward to new crop”.


Forward purchases?

Still, China may be buying 2021-22 supplies already too.


“There was talk that China may be done buying US old crop corn but on Friday may have bought 1.0m-1.5m tonnes of new crop US corn,” Mr Freed said, noting ideas that “China may buy more than 21m-22m tonnes of US corn in 2021-22”.


Benson Quinn Commodities too noted “some rumours China was in shopping and possibly booking 1.0m-1.5m tonnes of new crop corn.


“Old crop sales to China are already going to be difficult to lift as elevations are nearly booked. It would make some sense they are looking at new crop.”


‘Refill those stockpiles’

China was also seen as likely behind the purchase of 130,000 tonnes of US soft red winter wheat, as announced by the USDA on Monday (to “unknown”).


“After recent offerings of reserve inventories on wheat and rice in order to combat high corn prices, China will need to refill those stockpiles”, Benson Quinn Commodities said.


It noted too that China, where livestock feeders are looking for alternatives (including also rice, reportedly) to high-priced corn in feed, was a force behind the increase to 594,032 tonnes last week in US wheat exports, from 306,579 tonnes the previous week.


“China shows up as the destination for 200,297 tonnes of Pacific North West origin inspections as they continue to replace reserve stocks of wheat.”


China on Tuesday sold a further 1.59m tonnes of wheat from state stockpiles – 39.5% of the offer, , at an average price of 2,363 yuan ($360.36) per tonne.


Demand signs

… or was Saudi Arabia behind the latest US soft red winter wheat purchase, as part of Sago’s latest 295,000-tonne order, announced on Monday?


“We can note the purchase of 130,000 tonnes of US soft wheat by Saudi Arabia,” said Agritel, noting too “the announcement of another wheat tender from Algeria for tomorrow”, as well as an ongoing tender by Egypt’s Gasc, the result of which will be revealed last on Tuesday.


With Taiwain tendering for 96,485 tonnes of US wheat, and Ethiopia also releasing a tender, there were demand signs around, after the latest break in world prices.


Still, with Chicago soft red winter wheat having recovered some ground in the last session, investors were not keen in early deals to add extra premium, with the May contract easing by 0.3% to $6.16 ¼ a bushel.


Kansas City hard red winter wheat fell by 0.4% to $5.61 a bushel, after data overnight showed the US winter all-wheat crop at 53% good or excellent – an average reading for the time of year, and better than might have been expected a month ago, when La Nina-linked drought was testing Plains hard red winter wheat areas.

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