The broad market backdrop changed on Friday.
No longer were oil prices tanking, and the dollar gaining.
In fact, Brent crude rebounded 2.0% to $64.55 a barrel, after the last session’s tumble (which ended up at a decline of 6.9% but, signally, with the spot May contract recovering above 40-day and 50-day moving averages on a continuous chart).
The dollar, meanwhile, eased by 0.1% against a basket of currencies – a small fall, but one which did take it below its 10-day moving average.
With headwinds turned tailwinds, agricultural commodities managed some reversal too.
OK, that was not the case in China, where investors, unnerved by the overnight losses in Western markets, maintained pressure on most Dalian contracts.
Palm oil for May shed 1.2% there to 7,680 yuan a tonne, and May soyoil 1.8% to 8,944 yuan a tonne, although soymeal for May ended a more modest 0.5% down at 3,235 yuan a tonne, and May soybeans shed just 0.3% to 5,706 yuan a tonne.
Still an, important, exception was corn, which for May added 0.1% to 2,699 yuan a tonne, despite the surge in China’s imports, up 414% over January and February to 4.8m tonnes, and the further US purchases announced this week.
(The contract has also had to ride through reports that China is attempting a drive to cutback on corn and soymeal use, for replacement with other feedstuffs, although it was not clear exactly which.
As Mike Mawdsley at First Choice Commodities said, “good luck with that”.)
‘Will need to liquidate more’
Nor have all the jitters elsewhere over the latest selldown passed.
The sparks behind the last session’s liquidation - which Karl Setzer at AgriVisor reported as “concerns over inflation and its potential impact on demand”, besides news that some regions of the world are going to reinstate Covid lockdowns – have not been stamped out yet.
Meanwhile, there is the investor profile in commodities to consider too.
Benson Quinn Commodities said that in oil, “like most of the commodities, including grains and oilseeds, it feels like a lot of the length is out of position and will need to liquidate more position regardless of fundamentals”.
And certainly if crude does suffer more selling, as Tobin Gorey at Commonwealth Bank of Australia noted, “oil dominates commodity indexes that are the benchmark for an important group of investors in commodities”.
If oil markets take a hit, these investors are “activated to not only cut their oil allocation, but to sell commodities in general”.
Still, nor should it be forgotten that grain supplies remain tight – even if improved weather in the likes of Argentina, Russia and the US bodes better for production ahead.
As Benson Quinn Commodities said, selling into broader liquidations “is treacherous if domestic and global balance sheets are going to matter longer term”. Which they will.
And with two key US Department of Agriculture reports looming on March 31, on quarterly US grain stocks and on US sowings for 2021, which have a habit of moving markets, there was sense in not getting too carried away on the sell side.
‘Optimism is building’
Chicago corn futures for May rebounded by 0.5% to $5.49 ½ a bushel as of 10:20 UK time (05:20 Chicago time), staying ahead of 40-day and 50-day moving averages.
Mr Setzer, while noting the decline in crude prices, said that “optimism is building in the US ethanol industry”, a reflection of “elevated” export demand as well as domestic use, with the prospect of the summer driving season ahead.
Import “buyers are uncertain of other sources to supply their ethanol needs, mainly Brazil, which is expected to keep this demand at higher volumes.
“If production on ethanol continues at its current rate, we will likely see elevated corn demand as well, with a yearly usage from 150m-200m bu higher than what the USDA is projecting,” a difference which matters when US corn inventories are already depleted.
DDGs vs meal
Chicago soybean futures for May gained 0.4% to $13.98 a bushel, staying just ahead of their 40-day and 50-day moving averages too.
This time soymeal was the support, adding 0.6% to $400.60 a short ton for May, regaining the psychologically important $4.00-a-ton mark, despite the pressure from weakening prices of distillers’ grains (DDGs) - the rival high protein feed ingredient, output of which is being boosted by the ethanol sector revival.
The US Grains Council reported that “US DDGs prices are down $4.25 per tonne this week, as ethanol production continues to rebound from the February polar vortex that blanketed the Midwest.
“Additionally, logistics issues, particularly in the container market, are reducing truck demand.”
“This combination of factors is pressuring DDGs values despite steady, strong demand from domestic users,” although happily for soymeal bulls distillers’ grain prices are still relatively high - at 0.54 of Kansas City soymeal values, above the average of 0.43 - and offering some cushion to meal from weakening DDG prices.
Soyoil, by contrast, shed 0.4% to 53.33 cents a pound in Chicago for May, as rival palm oil lost 2.1% to 3,720 ringgit a tonne in Kuala Lumpur, undermined by ideas of improved Malaysian production.
Wheat, meanwhile, added 0.4% to $6.33 a bushel in Chicago for May, bouncing back over its 100-day moving average, which it closed below in the last session for only the second time in seven months.
That said, it still looks on course for a third weekly decline, amid ideas of improved conditions for winter wheat in the EU, Russia and the US.
While the French soft winter wheat rating did ease by 1 point week on week, in “good” or “excellent” terms, it remains, at 87%, well above the 63% reading a yet before.
Kansas City hard red winter wheat - grown on the southern Plains, where conditions are reported to have improved markedly with recent rains – stood unchanged at $5.87 a bushel.
Spring wheat, grown in the northern Plains, where dryness does remain an issue, added 0.4% to $6.28 ¼ a bushel in Minneapolis for May. After all, 100% of the top growing state North Dakota is rated as being in drought.