Bulls appear to have won the first round on a big day for US data.
The Malaysian Palm Oil Board reported that Malaysian palm oil stocks fell by 6.3% month on month in June, to 1.90m tonnes – below the 1.94m-tonne level that investors had expected.
The impact was to send Kuala Lumpur September futures, which had been trading lower ahead of the data, to 2,425 ringgit a tonne as of 10:25 UK time (04:25 Chicago time), a 0.9% gain on the day.
Production, exports soar
Not that the briefing failed to offer some crumbs for bears.
Malaysian palm oil production last month, at 1.89m tonnes, was more than 100,000 tonnes above expectations and, by a distance, the highest June figure on record.
It was also up 25% from June 2019 – the highest year on year gain for any month in nine years.
Even allowing for some pent-up pressure thanks to coronavirus lockdown hiccups, that was quite an increase.
However, the gain was offset by exports which, at 1.71m tonnes, jumped 24% year on year (and 25% month on month) as importers took advantage of Malaysia’s temporary scrapping of palm export duties.
(How sustainable that gain is is another question, with exports falling 16.8% month on month in the first 10 days of June, data from cargo surveyor Amspec showed.)
‘Early Russia yields are down’
Whether the big data release of the day, the US Department of Agriculture’s Wasde briefing, goes bears’ way, is another matter.
Certainly, in wheat, many investors chose to take profits on decent gains already this week, with the Chicago September contract shedding 0.6% to $5.21 ¾ a bushel.
Not that talk of harvest disappointment has run dry.
“Early Russia wheat yields are down 24% from last year,” Steve Freed at ADM Investor Services (although cautious should be taken in extrapolating too much from initial findings, as the first crops into the combine are often those which mature prematurely thanks to stress.)
Benson Quinn Commodities also noted that “Russian crop concerns continue to circulate”, adding that “early harvest reports are disappointing”, and noting too “talk China may be looking to buy US soft red winter wheat”.
Priced in already?
In Paris, Agritel besides restating the mixed nature of early results from the French soft wheat harvest (now 10% complete according to FranceAgriMer), noted an official forecast of the Bulgarian crop tumbling by 4.5m-4.9m tonnes year on year.
“The other area in Europe,” besides France, “where yields are in sharp decline is the region of Romania/Bulgaria”, Romania being a key EU wheat exporter.
Indeed, it was notable that this week’s Gasc tender provoked only one cargo of Romanian which, which was proved at 209.99 a tonne excluding freight, well above all but one of the nine Russian cargos offered (and above a lone Ukrainian cargo too).
However, the issue is whether the Wasde will produce enough in the way of downgrades to keep bulls fed.
“Global supply demand outlook for wheat will need to see a reduction in supply to hold recent rally,” Benson Quinn Commodities said.
“Some estimate that Europe wheat crop could drop 8m tonnes” from the June estinate, “and exports could also drop 6m tonnes,” Mr Freed said.
Corn futures did manage some headway, adding 0.2% to $3.49 ½ a bushel for September, and 0.1% to $3.57 ½ a bushel for the December lot.
But then, with funds still retaining a large net short position in the grain, estimated around 175,000 lots, position closing ahead of the Wasde could mean upward pressure on values.
The Wasde is expected to bring a sharp drop to the forecast for US corn stocks at the close of 2020-21, by 640m bushels, thanks to the lowered area estimate revealed two weeks ago.
That said, at the 2.68bn bushels that investors expect later, inventories would hardly be tight.
Also in play is, of course, US weather, and the heat and dryness testing Midwest crops.
Chinese corn imports are another feature, and ideas that a substantial inventory rebuild could be in play, meaning purchases from abroad.
As Mr Freed noted, on Thursday, “China sold another 4m tonnes of corn from reserves, but domestic prices are still near all-time highs. Import margins remain positive”.
Dalian corn for September in fact edged 0.5% higher on Friday to 2,143 yuan a tonne, a five-year closing high for a nearest-but-one contract.
China’s agriculture ministry on Friday, in the Casde briefing, raised by 2m tonnes to 6m tonnes its forecast for the country’s corn imports in 2019-20.
In 2021-21, “China corn imports could easily end up more than the 7m-tonne” WTO quota, said Terry Reilly at Futures International.
The Casde also raised the forecast for China’s soybean imports in 2019-20 by 3m tonnes, to 94m tonnes, offering some support to Chicago futures in the oilseed.
Still, the August soybean lot edged a modest 0.2% higher to $8.98 a bushel, with the uncertainty of the Wasde and US weather overshadowing the market.
November soybeans nudged 0.1% higher to $9.02 ¼ a bushel.
The Wasde is in fact expected to raise the forecast for US soybean stocks at the close of 2020-21, reflecting the increased US soybean acreage figure released two weeks ago (although a figure which still came in below market expectations, of course).
Still, on the other side of the coin, there is some idea that the inventory upgrade may be curtailed by an increased figure too for US soybean exports in 2019-20.