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Morning markets: Laggards turn leaders, as ags take above 8% rebound in a week


If there was a theme in ags in early deals, it was pretty much “buy stuff”.


Sentiment across financial markets was bolstered by the US agreement of a $2tn stimulus package for the world’s biggest economy, which like others is enmired in the battle against Covid-19 pressures.


Tokyo’s Nikkei share index closed up 8.0%, and Hong Kong’s Hang Seng added 3.8%, while London’s FTSE 100 gained 4.3% in early trading.


Brent crude bounced in and out of positive territory, while the dollar fell back 0.8% against a basket of currencies.


This included a 1.4% tumble against the rouble, much watched in the wheat market given Russia’s pre-eminence in exports.


Five wins in a row?

This rising tide did not lift quite all boats in ags.


Nor did all rise in step, with some contracts – in general, the worst hit during the downturn – riding the crest of the wave.


Ie, the bargain hunting idea alive in the last session, which saw laggards gain most, extended into this one.


But the Bcom ag subindex gained 0.6% as of 10:15 Uk time (05:15 Chicago time) to take to 8.4% its recovery from a record low (since it started in 1991) touched a week ago, looking for a fifth successive positive session.


‘Textile mills are shuttered’

New York cotton gained 2.2% to 54.06 cents a pound in New York for May, taking to 6.7% its recovery from an 11-year low set just two sessions ago.


Sure, as Louis Rose at Rose Commodity Group said, “if the economic projections of many major investment banks come to fruition, it seems that we will be looking at consumer-driven demand destruction for textiles over the near-term.


The lockdown in India is hardly positive for futures, as “textile mills are shuttered temporarily”, he said, while view as more concerning the threat to clothing demand across North America and Europe, with shops shut amid lockdowns and consumers in thrift mode.


“These areas combined account for the lion’s share of cotton-based textile purchases in the world.”


Still, there are limits to the extent that prices can dive, especially with US sowings looming - making comparative crop pricing more sensitive, in having an impact on planted area prospect – and with hedge funds holding a decent-sized short position in cotton on which to take profits.


The managed money net short in cotton as of last Tuesday, the latest data available, amounted to 12,465 lots, the highest since November.


‘Accelerating decline in demand’

Corn futures put in an above-par performance too, adding 1.3% to $3.51 ¾ a bushel in Chicago for May delivery – crossing back above their 10-day moving average, and the psychologically important $3.50-a-bushel mark too.


This, as with cotton, even as some forecasts of demand destruction are coming home to roost, with The Andersons overnight announcing “extended maintenance shutdowns” at its ethanol plants, citing “the accelerating decline in demand resulting from the coronavirus pandemic”.


“It is believed that most ethanol plants in the US are currently suffering a negative margin or roughly $0.30 on each gallon of ethanol produced,” said Karl Setzer at AgriVisor.


“Rather than run at these losses, plants are opting to simply halt manufacturing altogether,” with an industry estimate that the US will have 2bn gallons in output capacity idled by the end of this week.


‘China in for US corn’

Such a move “could lower domestic US corn demand by 300m bushels”, he added.


That said, this figure has been in the market for around a week.


Meanwhile, demand talk has taken a boost from ideas that China is back in the market for more US corn (and sorghum, and potentially distillers’ grains) after purchasing an officially-confirmed 756,000 tonnes last week. (And there is talk that there was more bought on top of that volume.)


Terry Reilly at Futures noted “talk China was in for US corn off the Pacific North West”, underlining too reports that Beijing has adopted a new registration process to fast track imports of US grains, boosting hopes that commitments made in the countries’ phase one trade deal will actually be met.


Moreover, the US is getting into corn-planting mode at a time when wet weather looks like slowing early planting pace, in southern areas.


And, also as with cotton, corn is a contract in which hedge funds have retained a large short on which to take profits (potentially to invest in soaring shares), with the net short at 91,846 lots as of latest data.


‘Running at full capacity’

Wheat - another target of Chinese orders last week from the US, but also of soaring consumer demand worldwide amid food stockpiling – added 0.9% to $5.66 ¼ a bushel in Chicago for May.


The lot is now up 11.4% in a week.


Support to prices from “domestic pantry demand remains robust”, Benson Quinn Commodities said.


ADM Investor Services, backing ideas of a “large increase” in flour demand, said that “There is talk that US millers are running at full capacity to try to get product to grocery stores.

“Prior to the US virus cases, 52% of US food demand was outside the house. The fact that restaurants are closed to in-dining suggests the demand for flour products have shifted more to grocery stores.”


Oils gain

Soybeans, meanwhile, proved the laggard of the complex, adding 0.4% to $8.90 ½ a bushel for May, struggling to get a foothold above their 50-day moving average, 3 cents or so higher.


China imported 6.101m tonnes of US soybeans in January and February, customs data showed, up from 1.044m tonnes in the first two months of 2019, when shipments were curtailed by the countries’ trade war.


And soyoil was supportive, adding 1.0% to 26.82 cents a pound in Chicago for May delivery, helped by the revival in energy markets, given that vegetable oils are used largely in making biodiesel.


Soyoil has now bounced 8.7% since a week ago hitting its lowest since 2006.


It was in turn a support that rival palm oil stood up 2.0% at 2,401 ringgit a tonne in Kuala Lumpur.


Malaysia export data

This despite, as Agritel noted, that key importer “India has just put in place containment measures for three weeks” in the face of Covid-19, “which means that the palm will decrease again”.


Still, Malaysian palm export data as revealed by Ampsec Agri for the first 25 days of March were not as bad as an 11.7% drop month on month may first appear.


As of March 20, the rate of decline was 20.2%.


Rival cargo surveyor ITS put the drop at 13.6% as of March 25, compared with 21.2% as of five days ago.


Heavy meal

However, soymeal, the other main soybean processing product, struggled again, shedding 0.8% to $329.60 a short ton for May, and allowing oil to increase its share of the product mix (as Agrimoney forecast).


As an outperformer for the previous month, the feed ingredient is last in line for purchasing under the bargain-hunting theme.


Furthermore, ideas of support from coronavirus-caused logistical hiccups have toned down, with reports that Argentina, the top soymeal exporter, is still in business.


“Argentina is reported to open all ports and have stopped any restrictions on trucks into ports,” said ADM Investor Services.

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