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Morning markets: Grains find some late-week stability - but cotton extends tumble

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Will ags be able to end a negative week on a winning note?

 

Fridays often brings a bit of a turnaround, typically as investors bank profits ahead of two (or more) days with markets closed.

 

And certainly there was a less negative air to early deals, in which the Bcom ag subindex stood pretty much flat, if still remaining 1.2% lower for this week so far.

 

This against a key headwind, in a further strengthening in the dollar, which added 0.3% to take its gains for this week to 1.1%. A stronger greenback cuts the affordability of dollar-denominated assets, such as many ags.

 

‘Inflation is going to be higher’

This dollar gain is coming despite comments by Jay Powell, the head of the US Federal Reserve, that the central bank was to maintain ultra-easy monetary policy until the economy is “very far along the road to recovery” – ie meaning no interest rate rises any time soon.

 

Markets are not as reassured by this as might have been thought. Commonwealth Bank of Australia currency analyst Joseph Capurso said that if rates are indeed “going to be on hold for a long time, that means long-term inflation is going to be higher”.

 

This is the reason behind “bond and equity markets sell-off”, he said, adding that “the currency markets are reacting to the increase in volatility in both those markets”.

 

As Agritel put it, “the rise in US long-term interest rates is causing concern among fund managers and is boosting the greenback”.

 

Shares extended their retreat on Friday, standing 1.0% lower in earl deals in London, after a 0.5% decline in Hong Kong.

 

Dalian prices

But of course prospects of higher inflation are typically viewed as a plus for values of commodities. And if in the last session ags got caught up somewhat in the broader market retreat, in early deals this time investors managed to focus a bit more on the pluses.

 

The overall Bcom index managed small gains, of 0.3%, reversal losses of the last session, which came even as oil prices soared on news of Opec discipline on output. And Brent crude added a further 1.9% to $68.00 a barrel as of 10:00 UK time (04:00 Chicago time).

 

Furthermore, US ag futures had help this time from their Chinese peers, with Dalian corn futures, for instance, rebounding by 1.1% to 2,790 yuan a tonne for its first positive session in six, and easing somewhat worries that a revival in African swine fever was hurting feed demand needs (and hence grain import prospects).

 

While Dalian May soymeal did extend its decline, by 0.5% to 3,351 yuan a tonne, it did at least manage to bounce from its 100-day moving average.

 

Stronger oils

Soymeal futures also face something of a headwind in buoyant vegetable oil markets, with meal-oil spreading a common trade.

 

And Dalian soyoil futures for May indeed added 0.8% to 8.966 yuan a tonne, to set a fresh eight-year high for a nearest-but-one contract.

 

Dalian palm oil gained too, by 0.8% to 7,466 yuan a tonne.

 

And palm oil in Kuala Lumpur gained support from this too, adding 0.5% to 3,749 ringgit a tonne for the May contract.

 

Although official data next week are expected to show Malaysian stocks rising, as Rabobank noted, they will remain “relatively low” through the first quarter of 2021.

 

Soyoil flying

In Chicago, rival soyoil could not follow on the rises, easing by 0.02 cents a pound for May delivery, to 50.69 cents a pound.

 

But this after closing the last session at a seven-year high,

 

Terry Reilly at Futures International flagged support to the complex from “concerns over thin global vegetable oil supplies”, while many commentators saw the rise in crude oil prices helping values of vegoils, which are used largely in making biodiesel.

 

As an extra twist, Steve Freed at ADM Investor Services noted “talk US President Joe Biden may increase soyoil use for jet fuel”, a factor which may also be triggering “new soyoil futures buying”.

 

‘Lacklustre exports’

Soybeans themselves also eased, but by a modest 0.5 cents to $14.10 a bushel for May, allowing corn futures to take the spotlight this time, in gaining 0.8% to $5.36 ¼ a bushel for May, and doing their best to repair some of the chart damage incurred of late.

 

The lot stood right on its 40-day moving average, which it closed below in the last session for the first time since August.

 

Chicago wheat futures for May stood lower by 0.25 cents, at $6.50 ¾ a bushel, more worried by the strength in the greenback, given that the US faces more competition in wheat exports than for the likes of corn and soy.

 

“The US dollar’s strength is headwind for prices. As are continued lacklustre US exports,” said Tobin Gorey at Commonwealth Bank of Australia.

 

On-call fixing

In New York, cotton futures for May failed to follow their grain peers in finding some stability, shedding 1.4% to 85.94 cents a pound – now down 10.1% from their multi-year intraday high set on Thursday last week.

 

Mr Gorey noted that “no support emerged for prices at recent lows”, as has happened recently when commercial buyers had stepped in.

 

“Investor activity, directly and indirectly, is likely creating much of this volatility with the trade quiescent.”

 

Also as a negative, on-call data overnight showed that mills had made substantial progress in pricing unfixed cotton, to the tune of some 8,000 lots for the three old-crop contracts, so leaving less support from this source yet to be realised.

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