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Morning markets: Cotton, soy firm as Tuesday provides some respite from selling


Last week, Tuesday proved the only positive day for ag prices.


And, after another dismal Monday session, the second day of this week provided a mild turnaround too, amid hopes of the US in particular taking further steps to tackle the threats posed by Covid-19.


Among external markets, some Asian stockmarkets managed headway, despite the 12.0% plunge in Wall Street stocks overnight, with Tokyo’s Nikkei edging 0.1% higher and Hong Kong’s Hang Seng gaining 0.9%, although Shanghai shares eased by 0.3%, and European markets traded lower in early deals.


Brent crude floated in and out of positive territory, although stood 0.7% lower at $29.84 a barrel as of 10:00 UK time (04:00 Chicago time).


Palm up

Also a factor taking more prominence is the impact of the virus-prompted travel restrictions outside China (which was quick to impose its own, of course), and their impact as applies to ags.


Palm oil futures found support not just from the stabilisation in energy markets, but from a move by Malaysia, the second-ranked producer and importer, to shut its borders to travellers, restrict internal movement, and order most businesses to shut from March 18-31.


The June, Kuala Lumpur palm oil contract bounced 2.3% to 2,271 ringgit a tonne, albeit only after earlier setting a five-month low, for a benchmark contract, of 2,186 ringgit a tonne.


In Chicago, rival vegetable oil soyoil rebounded by 1.6% to 25.39 cents a pound, after closing the last session at its weakest since 2006.


(This despite data from industry group Nopa showing US soyoil stocks last month well below market expectations.)


‘Strong demand’

Soybeans flew higher in soyoil’s slipstream, gaining 0.8% to $8.28 ½ a bushel for May delivery, also helped by continued relief at the Nopa data, which showed a US crush of 166.288m bushels for last month.


That was above the 164.956m bushels expected by investors, and seen helped in part by the problems being suffered by Argentina’s cash-strapped processors, now facing enhanced export taxes too.


“Strong demand for soy products helped push crush rates as Argentina continues to feel the effects of higher taxes,” said Benson Quinn Commodities.


‘Condition fell hard’

Meanwhile, there has been some weakening in expectations for South America’s ongoing harvest.


Terry Reilly flagged an IEG Vantage report that “the soybean condition in Brazil’s Rio Grande do Sul fell hard from the previous week.


“Limited rainfall has been hurting soybean conditions since early February.”


Karl Setzer at AgriVisor said that “we continue to see revised forecasts for South American soybean production.


“Last week firms cut their Argentine crop estimates, and now we are seeing the same for Brazil,” he said, highlighting a downgrade to 1.3m tonnes, to (a still high) 124.3m tonnes in the AgRural estimate of Brazilian output.


‘Deep into the red’

However, corn managed only a milder recovery, edging 0.1% higher to $3.55 ¼ a bushel, despite being exposed too to South American weather, and indeed to energy markets, via ethanol.


“Travel restrictions about the world, just ahead of spring break vacations and summer travel has the energy world seriously on the defensive with much anticipation of significantly reduced use of gasoline and most likely ethanol,” said CHS Hedging.


Already US ethanol production margins are “in the red”, the broker said, adding that there are “concerns as to how long plants will continue to take on the lower grade corn”.


Mr Setzer said that “one of the industries that has suffered the most from coronavirus fallout is ethanol manufacturing,” noting that even bigger declines in oil and gasoline prices than corn costs “have dropped ethanol [producer] margins deep into the red”.


Many plants are “running at $0.20 per gallon losses… the worst margins for ethanol manufacturers for this time of year in the past eight years”.


‘Lower Russian prices’

And Chicago wheat remained in negative territory, easing 0.1% to $4.23 ¼ a bushel for May, little helped by weakness in the rouble, which edged 0.4% lower to 74.2 per $1 (although it has to be said is developing a price ceiling around 75.5).


“Lower Russian wheat prices,” rendered more competitive in dollar terms by rouble softness, “continue to offer resistance to [Chicago] prices,” said ADM Investor Services.


Furthermore, Chicago wheat is being undermined by the fact that it is among ags in which funds retain a net short position – and managed money has been in commodities exercising what Societe Generale termed a “general and non-directional closure of positions” in response to market volatility.


This “could be explained by a need for cash to pay margin calls on other derivatives contracts,” the bank said, with the trend also being blamed by some, for instance, for a fall in gold prices – which shed a further 2.9% on Tuesday – despite the metal being seen by many as a defensive asset.


‘Loss in downside momentum?’

In New York, cotton futures for May enjoyed a stronger session, adding 0.6% to 59.15 cents a pound.


Besides being helped by the cautious improvement in the macro mood, the fibre is now an ag in which hedge funds have a net short position, limiting pressure from the hedge fund exit theme as mentioned above.


ADM Investor Services also noted that while for cotton “technical indicators are low, they are higher than they were at the February 28 low.


“This divergence could be a sign of a loss in downside momentum.”

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