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Morning markets: Palm oil accelerates rebound, as market rebound beds in


The recovery in ag prices, if not gaining momentum, at least set down roots, as investors get better tabs on coronavirus.


Sure, the death toll from the virus continues to rise, now approaching 490 in China. Elsewhere, 10 cases were confirmed on a quarantined Japanese cruise ship.


However, with growing investor appreciation of Chinese efforts to contain the disease, and offset its economic impact, buyers have returned for assets which have already built in quite a discount to allow for coronavirus damage.


Chinese price gains

Price gains in China itself are bolstering market confidence, with a rise of 1.3% in Shanghai shares, and 0.4% in Hong Kong stocks, helping pave the way for 0.6% headway in London shares in early deals, and a 0.7% uplift to Frankfurt stocks.


In ags, Chinese prices proved generally firm overnight too, with a 1.3% gain to 5,716 yuan a tonne in Dalian palm oil for May, a 1.3% rise to 6,126 yuan a tonne in May soyoil, with soymeal showing a more modest rise of 0.3% to 2,637 yuan a tonne.


On the Zhengzhou, cotton for May soared 2.6% to 12.905 yuan a tonne, with rapeseed meal gaining 0.6% to 2,230 yuan a tonne and May sugar nudging 0.4% high to 5,658 yuan a tonne.


Losers included Dalian corn, which shed 0.8% to 1,922 yuan a tonne, with soybeans easing 0.1% to 4,003 yuan a tonne.


Oil benchmark

Also helpful for ags early on Wednesday was a 2.6% rebound to $55.37 a barrel in Brent crude, a market which has been badly shaken by worries of what coronavirus could mean for economic growth in China, and elsewhere, with knock-on effects for energy demand.


JP Morgan said earlier this week that “oil prices remain the primary point of transmission of demand related concern across agri commodity markets”, in a note which was upbeat on prospects for both oil and ags.


For oil, the bank noted that “the extent of [price] losses now exceeds the Sars-related selloff, albeit has occurred much quicker”.


JP Morgan added: “We continue to flag upside price risks for oil prices off the current lows”, while viewing the “break lower in agri prices, oilseeds in particular, as an opportunity for consumers to extend longer-dated hedge coverage”.


Dwindling stocks?

Against this backdrop, it was perhaps unsurprising that palm oil and soyoil were particular gainers in early deals – being within the oilseed sector, and related to oil markets via their use in making biodiesel.


This besides gaining support from the overnight headway in Dalian prices, with China of course a key importer of vegoils.


As an extra fillip, investors are expected official data next week to show a 12% drop month on month in Malaysian palm oil stocks in January to 1.76m tonnes, which would be the lowest in more than two years.


Sure, exports are seen down - largely on weaker demand from India, which is amid a political spat with Malaysia.


But production is seen falling too, by 9% month on month to 1.21m tonnes, the weakest since March 2016.


Oil spurt

Kuala Lumpur palm oil futures for April soared 4.8% to 2,795 ringgit a tonne as of 10:20 UK time (04:20 Chicago time), albeit still not having recovered all ground lost in their 10% plunge on January 28.


Chicago soyoil for April gained 2.8% to 31.58 cents a pound, now above their January 28 levels.


This in turn helped Chicago soybeans for March added 0.8% to $8.86 ¾ a bushel, with wet weather offsetting too some of the pressure on prices from the Brazilian harvest.


Maxar said that in Brazil this week “rains in east central and northern areas will improve moisture, but will slow soybean harvesting and safrinha corn planting”.


At First Choice Commodities, Mike Mawdsley said he was “hearing it may get a bit too wet in parts of Brazil - that could slow harvest and push back planting corn”.


‘Very important upside risk’

Furthermore, there is a growing focus back on the phase one China-US trade deal.


While that has disappointed initially, in not provoking an immediate jump in Chinese orders of US ags, it does have more than a week left before it officially comes into place.


“The likely first steps of the Chinese government issuing duty free import quota across product lines could commence sooner,” JP Morgan said.


“This is a very important upside risk for agri commodities that has seemingly been lost in the contagion of the sell-off over the fortnight.”


Wasde implications?

And there is growing discussion too over how the deal will play out in terms of forecasts the US Department of Agriculture makes in its next Wasde crop report, due next week.


“Early whispers are that USDA could lower the [2019-20] US soybean carryout 25m bushels from the current 475m bushels, lower wheat roughly 65m bushels from January’s 965m bushels, and take corn carryout down by a 100m bushels from the January estimate of 1.9bn,” said Benson Quinn Commodities.


Still, with worries remaining over the pace of US corn exports, and the Brazil rains helpful for getting safrinha corn seedlings off to a good start, Chicago corn futures for March managed a modest 0.1% to $3.82 ¾ a bushel.


‘Logistics may be a deep concern’

It is also worth noting the knock-on implications of China’s lockdown in an effort to control coronavirus, with talk of this interrupting feed supplies to some areas, and so forcing culls by protein producers.


“Internal logistics may be a deep concern,” said ADM Investor Services, noting too that “a few key China ports may not be able to unload out or deliver goods due to transport restrictions and inability to get workers and drivers.


“This has some looking for China to begin to buy US meat.”


Such dynamics could boost US feed demand longer term, but curtail Chinese needs for now, depending on the details of the


Wheat gains

Wheat fared better, adding 0.8% to $5.61 ¾ a bushel for March delivery, helped by some nascent jitters over colder weather bringing winterkill for Russia’s winter crop, although a US chill looks more of a concern for other markets.


Benson Quinn Commodities noted that “Accuweather is forecasting a dip of the polar vortex into the interior West and northern Plains for next week.


“And this much colder air could stick around for a couple weeks.”


While it is “early in the season for much concern about the winter wheat crop… the cold temperatures could increase feed demand and support livestock markets,” the Minneapolis-based broker said, terming the outlook “a blow to those of us up north”.


More wheat focused, ADM Investor Services said that a potential Wasde upgrade of 65m bushels in the USDA estimate for US wheat demand in 2019-20 “could be enough to rally March Chicago wheat closer to $5.80 a bushel”.

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