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Morning markets: Markets mull ideas of fast money speeding from New York to Chicago

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The talk is there that fast money may be speeding into commodity markets, ags included, as share prices collapse.

 

Charging from New York to Chicago, as it were.

 

But such ideas were not translating, in early deals on Friday at least, into much in the way of ag price gains.

 

Shares looked to end the week on the same note that they started it – in retreat – amid fears that pressures from economic growth and inflation will spur faster interest rate rises than previously allowed fro.

 

Shanghai stocks were a particular loser on Friday, tumbling by 4.0%, with Hong Kong shares down 3.1% in afternoon deals, and Seoul equities dropping 2.2%.

 

European losses were more modest in early deals, with London’s FTSE 100 down 0.3% for instance, although it is still down some 4% for the week.

 

And all this money liberated by the selling, where will it go?

 

‘Hot money out of New York’

 

“According to our chart, it looks like the Dow Jones closed below its 100-day moving average for first time since early November 2016,” said Terry Reilly at Futures International, flagging something of a landmark for technical investors.

 

“Could we see money flow from equities into commodities?”

 

Karl Setzer at MaxYield Co-operative flagged said that in the last session “sharp losses in the financial markets also aided commodities as traders are starting to look for alternative places to park investments”.

 

And Benson Quinn Commodities - talking of US share markets getting “crushed”, and of “continued concern over the rate and pace of interest rate hikes” – said that “managed money or hot money out of New York may be finding its way into the [ag] space as the inflation word continues to percolate with equity managers”.

 

‘Perform very well during rate-hiking cycles’

 

Commodities are seen as more inflation proof – indeed, as potential inflation beneficiaries, being the kind of assets whose price rises feed through into inflation.

 

As Jeff Currie, the Goldman Sachs head of commodities research, said this week: “Historically, when you look at commodities they perform very well during rate-hiking cycles.”

 

That said, the worry on many ags is that supplies are so large that they will find it hard to make end-users pay up.

 

And that may make it difficult too to attract a fresh wave of fund buying once the short-covering wave seen in many contracts of late, such as wheat, washes out.

 

‘Old target was highly unlikely’

 

Certainly, Chicago wheat futures for March shed 0.9% to $4.52 ¼ a bushel as of 10:00 UK time (04:00 Chicago time), although stayed just ahead of their 10-day moving average, and well ahead of their 100-day line.

 

Thursday brought US Department of Agriculture Wasde crop report which cut the forecast for US wheat exports by 25m bushels to 950m bushels, after a soft export performance so far this season.

 

“The old target was looking highly unlikely, the new one less so,” said Tobin Gorey at Commonwealth Bank of Australia.

 

The USDA also reminded of the rise in US wheat prices so far in 2018, and the impact on export competiveness.

 

‘Extreme concerns’

 

And traders received a reminder of the ever-present world trade battle with tenders overnight by South Korea and Egypt for wheat, with a purchase unveiled by Indonesia too.

 

Still, Thursday also saw a weekly USDA drought monitor which showed the spread of dryness in the likes of Oklahoma and Texas, spurring concerns about US winter wheat seedlings as the spring growing period looms.

 

“The new US drought monitor continues to show stress in Kansas and extreme concerns in the panhandle region in Oklahoma and North Texas,” said Benson Quinn Commodities.

 

And “overall, the dry pattern looks to continue in southern wheat country,” said Benson Quinn Commodities.

 

‘A little premature’

 

Futures in corn, which put in a sluggish performance in the last session despite emerging with somewhat bullish credentials from Thursday’s USDA’s Wasde briefing, also eased, by 0.3% to $3.64 ½ a bushel.

 

In fact, there was some scepticism over the extent of a 125m-bushel upgrade in the report to the forecast for US corn exports in 2017-18.

 

“While we see the logic in this we think it may be a little premature given the slow pace of exports leading into the new year and the recent strength in the dollar,” CBA’s Tobin Gorey said.

 

“We would not be surprised if this was revised back in the coming months, especially if the dollar continues to strengthen.”

 

Of little help was talk that some Chinese buyers have cancelled purchases of US corn, in favour of Ukraine supplies, thanks to tighter government controls on genetically modified varieties.

 

Argentina debate

 

Soybean futures - which defied downbeat Wasde revisions in the last session, perhaps evidence indeed of fund buying – lost ground this time, shedding 0.3% to $9.84 ¾ a bushel for March.

 

Still, there remain ideas that the USDA’s downgrade in the Wasde to its Argentine soybean harvest forecast, by 2m tonnes to 54.0m tonnes, may not be the last. (Nor indeed the upgrade of 2m tonnes to 112.0m tonnes in the Brazilian harvest estimate.)

 

The Buenos Aries Grain exchange cut its forecast of Argentina’s soybean crop by 1m tonnes to 50m tonnes.

 

“Many, ourselves included, think that Argentina’s crop will be even smaller because the weather remains too hot and dry,” Mr Gorey said.

 

Still, futures in soymeal, which are proving particularly sensitive to concerns over Argentina, the top exporter of the feed ingredient, shed 0.6% to $339.70 a short ton for March – if only on profit-taking on long soymeal – short soyoil bets.

 

Soyoil itself added 0.5% to 32.57 cents a pound, reversing a few of the losses of the last session, and helping palm oil add 0.8% to 2,515 ringgit a tonne in Kuala Lumpur.

 

Data battle

 

Another debate hanging over from the last session in cotton, in which the USDA announced bumper US export sales and shipment data for last week - only in the Wasde a few hours later to downgrade its forecast for US exports in 2017-18.

 

“Going strictly by the numbers, the February Wasde report was neutral, at best, to bearish, but the export report was out-and-out bullish,” said Louis Rose at Rose Commodity Group.

 

In the last session, futures eased back, on the Wasde, from highs made after the sales data, but still closed higher.

 

And they added to those gains on Friday, standing up 0.6% at 77.11 cents a pound for March delivery.

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