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Morning markets: Just how big has ag stockpiling been? Futures retreat, as demand data loom


The panic buying of toilet paper has become so high profile that some wags have set up a website calculating how long back-cupboard roll hoards will last.


Are the same kind of calculations going on in agricultural commodity markets, as to the sufficiency of stockpiles built up through the supply chain, and into pantries?


Certainly, if the last session was marked by a particular clamour for breakfast commodities, by the time juice, toast and coffee time came around, markets showed signs of a bit of a hangover.


Risk assets reverse

It was actually a broad theme, with a more sober air on share markets after the exuberance of the last session.


Hong Kong shares ended down 0.7%, and Tokyo stocks tumbled by 4.5%, with London shares 2.4% to the bad in early deals.


Investors, having cheered the roll of central banks and governments into action to support economies battered by the war against the coronavirus epidemic, are now awaiting evidence that stimulus is indeed stimulating.


Brent crude fell back 2.4% to $26.74 a barrel as of 10:10 UK time (05:10 Chicago time), although more supportive to prices of many dollar-denominated ags, the greenback also dipped, by 0.6% against a basket of currencies, making them more competitive as exports.


So it was not such a surprise that, say, cotton futures dipped, by 1.0% to 52.90 cents a pound in New York for May delivery, the fibre being an industrial ag, so lacking support from the food hoarding theme, and one depressed too by low prices of oil, the source of rival polyester.


“Cotton is again moving, at least directionally, with equity markets,” said Louis Rose at Rose Commodity Group.


‘Significant-to-notable slowing?’

But a particular factor for ag investors to consider, it being a Thursday, is that for all the speculation and rumour about demand (eg of China buying more US grains than has been revealed by US Department of Agriculture alerts) the day will bring concrete and much-watched weekly statistics on US export orders.


Will these live up to the headlines?


In fact, for cotton, there is some expectation that the recent run of strong statistics will come to an end.


“It may finally be time for the report to show a significant-to-notable slowing of, perhaps, both sales and shipments,” Mr Rose said.


‘No longer competitive’

But what about, say, wheat?


There have been some signs of importers backing off at higher prices, with South Korea’s MFG passing on a feed wheat tender, and Algeria’s latest 240,000-tonne purchase (probably largely from France) “lower than the operators’ expectations”, according to Paris-based Agritel.


As for the US, ADM Investor Services noted that while there has been “some talk that Russian domestic prices had firmed on supply concerns… US export prices are no longer competitive for buyers”.


And whether US export sales data later can live up to the 200,000-500,000 tonnes that investors expect, (up from the 338,334 tonnes the week before)…


‘Demand is through the roof’

Soft red winter wheat futures for May shed 0.5% to $5.77 a bushel in Chicago – and they have a good consumer demand story in the US, and elsewhere, to back them up.


ADM Investor Services, noting a “large increase in US domestic flour demand”, said that “US millers have increased production due to increase consumer demand at grocery stores”.


“Global wheat flour demand is through the roof,” said Terry Reilly at Futures International, highlighting too the ban by Kazakhstan on its exports of the product.


In North America, “flour millers are going full out”, he said, highlighting too that this was at a time of “shortage of old crop, high quality, soft wheat”, particularly in the upper eastern Corn Belt).


This when, for soft red winter wheat (used largely in biscuits and crackers rather than bread), registrations of supplies for delivery against Chicago futures “are at only 11 contracts”.


‘Ethanol production minimised’

For corn, for which the US demand story from ethanol is collapsing along with production margins for the biofuel, the Chicago May lot stood down 1.1% at $3.44 ¾ a bushel.


“US ethanol production continues to be minimised because oil prices are low,” said Tobin Gorey at Commonwealth Bank of Australia.


Valero overnight reportedly announced the closure of at least two ethanol plants, and declared force majeure on shipments of distillers’ grains (DDGs) and corn purchases.


This the day after the Andersons unveiled shutdowns which would leave it running at half capacity.


“I am spit balling on demand going forward, but it feels like 75% utilisation for the entire US ethanol industry is way more than is needed,” said Benson Quinn Commodities.


‘Big problems for prices’

There is also the potential for large and imminent US sowings of corn to consider too – a factor which, with the ethanol downturn, represent “big problems for corn prices”, Mr Gorey said.


“The market is expecting US growers to plant an extra 4m acres of corn this season, a big jump.”


This will come increasingly into focus, over the next week, with Wednesday to bring a much-watched USDA briefing on US farmers’ spring sowings intentions for this year.


Forward buying by China?

For soybeans, expectations are not so large, with Refinitiv, for instance, on Wednesday coming out with a lowball estimate of 82.9m acres.


(The USDA, at its Outlook Forum last month, proposed an 85.0m-acre figure.)


That said, should new crop, November soybean futures maintain some outperformance…


“There is talk that China has begun to buy US new crop soybean which is helping November futures,” said ADM Investor Services.


China typically buys soybeans at this time of year from South America, where supplies are being replenished by the ongoing harvest, switching to the US later on after harvesters start rolling there in earnest.


And, with China having huge commitments for purchases of US ags under its phase one trade deal, there are hopes that this will see a particularly big order book of US soybeans emerging later in 2020.


‘Less fear’

Soybean futures for May shed 1.0% to $8.72 ½ a bushel, feeling pressure too from a continued tumble in soymeal values, down 1.2% at $317.70 a short ton.


Terry Reilly noted “talk of hedging of meal out of Argentina”, the top exporter of the high protein feed ingredient, whose shipments had been seen likely to be disrupted by Covid-19 effects.


ADM Investor Services flagged “talk that large Brazil soybean exports to China could lower China soymeal prices and add to their stocks”.


Certainly, in China best-traded Dalian soymeal futures for September, after a four-session winning streak which gained them 7.9%, fell back 1.4% on Thursday to close at 2,916 yuan a tonne.


Currently “there seems to be less fear of crushing plants and export facilities in South America being hindered by the spread of the virus,” said Benson Quinn Commodities, although adding that “I would take the latter with a grain of salt as the situation remains very fluid”.


Palm exports

Soyoil prices, meanwhile, eased a more modest 0.1% to 26.61 cents a pound for May, continuing their recovery from their lowest levels since 2006.


Rival vegetable oil palm oil eased 0.4% to 2,373 ringgit a tonne in Kuala Lumpur, giving back a little bit of headway made in the last session on ideas on a coronavirus-driven lockdown in Malaysia, the world’s second-largest palm producer.


In the top producer, Indonesia, exports fell to 2.39m tonnes in January, a drop of 32% year on year, according to palm oil association Gapki, a drop attributed to large stocks in importing countries and to initial effects of Covid-19 as it spread in China, a major vegetable oil importer.


Data later

Back to the US export sales data expected later, and they are expected at 8,000-30,000 tonnes for soyoil, compared with 18,875 tonnes last time.


For soybeans, they are forecast at 400,000-800,000 tonnes, compared with 631,577 tonnes the previous week.


And for corn they are expected at 900,000-1.80m tonnes, at least matching the 904,524 tonnes last time.

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