Often, the last session of the week can bring a reversal in the prevailing trend, as investors book profits before two days without being able to trade.
There was a feel of such a dynamic around this time too, as grains made a bright start.
Share markets were extending the decline begun in the last session when US President Donald Trump unveiled import levies on US imports of a further $300bn of Chinese goods.
In London, the FTSE 100 index traded 1.8% lower in early deals, with Frankfurt’s Dax down 2.4%, after a 2.4% lower close by Hong Kong’s Hang Seng, and a 1.4% dip in Shanghai shares.
‘Demand bears continue to win’
But while, in ag markets, Kuala Lumpur palm oil, a market closed when Mr Trump made his tweets, extended the round of ag sector losses from the last session, falling 0.3% to 2,058 ringgit a tonne as of 10:00 UK time (09:00 Chicago time), Chicago grains made headway.
Albeit, grains regained only a fraction of the losses made earlier in the week, amid mounting worries over demand for US crops.
Mike Mawdsley at First Choice Commodities said overnight that “the demand bears continue to win for now,” adding that “the higher dollar doesn’t help commodities, as the Index hit its best level since May 2017” on Thursday, weakening the affordability as exports of dollar-denominated assets.
For soybeans, Karl Setzer at AgriVisor said that “trade is still concerned over cumulative new crop soybean sales which are a record low at 122.5m bushels”.
‘Lowest since 2010-11’
For US corn, Terry Reilly at Futures International highlighted that new crop export “commitments are running at their lowest level since 2010-11”, against a backdrop of competition from Brazil, whose supplies are being bolstered by a strong safrinha harvest.
“We heard a US Southeast meat end-user booked two more Brazilian corn cargoes,” Mr Reilly said.
Mr Setzer added that “another demand that is becoming more concerning is corn for ethanol.
“Ethanol manufacturing has been decreasing as we see more plants slow operations and go off-line due to poor margins.”
‘Seeing dry soils build’
However, there does come a point when Chicago prices fall low enough that US crops begin to look better value for commercial users.
For instance, “current market structures would indicate Pacific North West beans would be cheaper than South American origin rival suppliers” to China, without tariffs, Benson Quinn Commodities said.
Furthermore, there remain some worries over conditions for US crops, with Mr Setzer noted that the latest US Drought Monitor showed “abnormally dry soils are expanding across eastern Iowa and western Illinois.
“We are also seeing dry soils build in Indiana, Texas, and Kansas.
“In a normal year trade would not show too much attention to these but given the stress the crops have been subjected to since planting, any adverse factor can impact yield.”
FranceAgriMer did its bit to support bulls by reporting a further cut in French corn crop condition, by 6 points week on week to 61% “good” or “excellent”, after last week’s heatwave.
That said, growing expectations for wheat output are easing concerns over a squeeze on feed supplies.
“The French [wheat] production volume is reassuring operators and should offer an alternative solution to the decrease forecasted on corn due to the dry and hot conditions seen in July,” said Agritel.
Whatever, there is the factor that funds appear already to have stocked up quite considerably on short bets, to judge by recent open interest data, which show a rising number of live positions into the falling markets.
For Chicago corn futures, for instance, open interest is up some 40,000 lots in the past three sessions.
Might this limit their appetite for more such bets, when there is the prospect ahead of an August US Department of Agriculture Wasde briefing which could see a large downgrade to the forecast for US corn sowings this year?
As Ray Young, the ADM finance director, said on Thursday, “our internal viewpoint is that the acreage will come down, particularly in corn, and so probably into the mid-80s [million acres], around that area there,” compared with a USDA figure of 91.7m acres.
Corn futures for December added 0.6% to $4.04 ¾ a bushel, steering away from a confrontation with the $4.00-a-bushel mark, which the contract fell temporarily below in the last session for the first time in two months.
With corn the market leader of late, that helped other contracts too, with Chicago September wheat rising by 0.8% to $4.79 ½ a bushel, recovering from its own two-month low.
Chicago soybeans for November added 0.5% to $8.689 ½ a bushel, albeit still down 3.5% for this week.
Signally, soymeal managed some revival too, with the December contract added 0.7% to $301.70 a short ton, regaining the $300.00-a-short-ton mark.
One ag which failed to revive was cotton, which for December stood down 1.2% at 61.64 cents a pound, with the revived US-China trade tensions only seeming to bolster funds which have already built up a record net short in the fibre.
The contract earlier touched 61.45 cents a pound, a three-year low on a nearest-but-one contract basis.
“Any chance of a US China trade deal near term seems to have evaporated,” said Tobin Gorey at Commonwealth Bank of Australia.
“And with that cotton futures offer much less value as ‘play’ on a deal.
“Moreover, the handbrake on producer and trader seasonal selling will have been released.”
That said, on-call data overnight showed a further gain in mill purchases of cotton for pricing later against futures, a decent sign for demand.
“Mill on-call commitments against all active contracts were approximately 320,000 bales higher for the week ending July 26 versus the previous assay period at around 9.5m bales,” said Louis Rose at Rose Commodity Group.
“Producer commitments against all contracts were around 150,000 bales higher at approximately 6.25m bales.
“The continued increase in mill on-call commitments is supportive.”