The coming of March brought something of a spring feel to grain markets.
While February ended on a wintry note - if showing gains overall, for a ninth successive month as measured by the Bcom ag subindex – March 1 had a warmer tone, in line with the new money, new money idea followed in Chicago.
The Bcom ag subindex stood 0.6% higher in early trading, reversing some of its losses of Friday – and in line with a more positive tone on external markets too, with Tokyo shares adding 2.4% and London stocks up 1.7% in morning trade, while Brent crude was up 1.3% at $65.23 a barrel.
‘Opportunity to escape shorts’
It was surprising the index was not showing a little higher, given some of the moves in early deals – notably that of cotton, which for May soared 3.3% to 91.80 cents a pound as of 10:50 Uk time (04:50 Chicago time), regaining more than half its losses from its thumping over the last two sessions of last month.
Is this a sign of investors with short positions, as shown in on-call and commitments of traders data, taking advantage of the lower values to cover positions?
“Mills still need to fix and merchants have basis-longs to unload, both of which require futures to be bought back,” said Plexus Cotton.
“We have 8m bales in speculative longs versus 16m bales in trade shorts, so unless specs go net short, which we don’t anticipate, the trade will eventually catch” a falling market.
“The bullish drivers in the cotton market haven’t really changed,” the merchant said, adding that the late-February “sell-off will help to clear out remaining inventories in the US and give the trade an opportunity to escape their shorts with minimal damage”.
There was a bit of bargain hunting talk going on in grain markets too, with Benson Quinn Commodities noting that Friday’s “break gives end-users another chance to gain coverage”, and reminding of the market idea that “demand bull markets always let you in?”
Still Chicago corn futures was somewhat sluggish out of the block, for May up a modest 0.1% to $5.47 ¾ a bushel.
Sure, on the supportive front, Tobin Gorey at Commonwealth Bank of Australia noted that “weather forecasters have again adjusted their outlook for key crop regions of Argentina.
“Weather models’ projections started to eliminate a lot of the prospective rain relief expected this week.”
Indeed, Maxar said that in Argentina, “dry and warm weather this week in central and eastern areas will reduce moisture again for late growth of corn/soybeans.
‘Stall harvesting and planting’
In Brazil, “persistent active rains in northern and east central areas will continue to stall soybean harvesting and safrinha corn planting”, Maxar said.
In Mato Grosso, Imea reported (safrinha) corn sowings in Brazil’s top growing state at 54.7% complete as of Friday, below an average of 80.1%, and the 92.0% achieved last year,
This when the ideal planting window has now closed, with crops seeded from late February onwards more vulnerable to dry season roulette in the country.
The delays are a reflection of a late soybean harvest, which reached 52.1% completion, behind the average of 69.7% progress by now, and last year’s 84.1% figure, according to Imea.
‘Political and not economic’
However, overshadowing the corn market is a widespread worry that China has stepped back from the market, and that its buying spree may now be complete.
“The lack of US export developments” last week is “concerning since the optimism of China buying post-new year holiday is starting to fade” said Terry Reilly at Futures International.
Sean Lusk at Walsh Trading reminded that latest US weekly export sales data showed that “China switched 68,000 tonnes to delivery to Vietnam and another 68,000 tonnes sold to ‘unknown’ was switched to Vietnam.
“It is my belief such action raises questions about the big corn buying splash by China during the first week of President Biden’s term was political and not economic.”
This idea tallies too with the reviving concerns over African swine fever (ASF) in China, which in meaning curtailed feed demand would curb the country’s need for grain imports (although potentially supporting pork purchases).
Mike Mawdsley at First Choice Commodities noted a decline in Dalian soymeal futures, which for May shed 1.5% to 3,434 yuan a tonne on Monday, to take two-session losses to 4.7%, “after a survey showed their hog losses this winter are more than realised”.
Benson Quinn Commodities noted talk of “spreading ASF in China with all the demand risk that entails.
“Some are indicating the disease has mutated and no longer a death sentence while other stories paint a bleaker picture of herd health and population size.”
Karl Setzer at AgriVisor flagged data showing “it may take another year or longer to see China’s hog production back to pre-African swine Fever levels,” adding that this had “generated ideas that China will not need the volume of feed grain imports as earlier suspected.
“There is an outside chance this could lead to cancellations of current Chinese bookings, especially if the market recedes.”
Corn vs soy risk
And this is more of a risk for corn than soybeans, in US export terms, as the corn shipment campaign is weighted more towards the back of the season, ie meaning a higher proportion of export sales are as yet unfulfilled.
“Corn is exposed to sales cancellations with much of that programme yet to lift,” said Benson Quinn Commodities.
“Soybeans don’t have that luxury as most of those have left the premises.
“China’s demand situation will show in corn cancellations if hog herd health is a real issue.”
And, indeed, soybeans managed better to catch early-month optimism, and South American weather worries, with the May contract gaining 1.1% to $14.19 a bushel.
Soymeal provided the support this time, adding 1.2% to $426.30 a short ton for May, while May soyoil was flat at 49.94 cents a pound – held back by softness in values of rival vegetable oil palm oil.
Kuala Lumpur palm oil for May stood 1.8% lower at 3,674 ringgit a tonne, after cargo surveyor data showed a month-on-month decline in Malaysian palm shipments in February, pegged at 5.5% by ITS and 8.2% by AmSpec, with SGS putting the decline at 4.6%.
OK, February was a shorter month. But even adjusting for that, even the SGS data show a modest gain of 5.6% month on month from a dismal January figure.
Back in Chicago, wheat proved more buoyant, adding 0.6% to $6.64 ¼ a bushel for May delivery, again finding a bit of bargain hunting after its 3.7% slide over the last two sessions of last month.
Still, there remain causes for bullish concern, with Steve Freed at ADM Investor Services saying that “wheat futures are overpriced given the strong seasonal [price tendency] of lower price action into north hemisphere spring weather”.
Mr Gorey said that the “market needs to see a step-up in US export sales to validate the view of the bulls. Last week’s export sales showed scant signs of that.”