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Morning markets: Palm oil futures collapse, as coronavirus stokes China import doubts

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This time, it was palm oil’s turn on the rack.

 

The Kuala Lumpur palm oil market was closed, for lunar new year celebrations, on Monday when other ag markets fell under worries over coronavirus.

 

But the vegetable oil certainly made up for it on Tuesday, when the April lot plunged by 9.8% to 2,580 ringgit a tonne as of 09:40 UK time (03:40 Chicago time), setting a two-month low for a benchmark contract.

 

The fall also took to 15.5% the slump in the benchmark Kuala Lumpur palm oil contract so far in 2020.

 

‘Prices plunged’

“In Kuala Lumpur, palm prices plunged after a long weekend,” said Agritel, flagging the setback posed by tensions between top importer India and second-ranked exporter Malaysia, besides the coronavirus factor.

 

“Beyond a slowdown of the demand caused by sanitary risks in Asia, the degraded relations between Malaysia and India are also weighing on prices.”

 

A Reuters report said that India is set to import less than 70,000 tonnes of palm oil from Malaysia in January, the lowest since April 2011 and significantly lower than the 253,889 tonnes imported in January last year.

 

China, meanwhile, has represented a hope for Malaysian palm oil exporters. Chinese vegetable oil imports have been buoyed by a knock-on effect of the African swine fever outbreak which, in cutting demand for soymeal feed, has lowered crush margins and so cut domestic output of vegoils too.

 

Oils’ slip

That said, cargo surveyor data showed some late-month improvement in Malaysian exports overall, in that the pace of shipments as of January 25 was declining by 5.2% month on month, compared with a 9.9% rate as of January 20.

 

ITS put the rate of decline as of January 25 at just 1.3%, compared with 7.4% at the January 20 stage,

 

Still, also on the negative side for palm oil, given its use largely in making biodiesel, is the tumble in prices of Brent crude, which stood down 0.8% at $58.85 a barrel, taking its losses for 2020 a bit above 10%.

 

Crude prices have been notably affected by the coronavirus outbreak, and its potential implications for Chinese, and global, economic growth.

 

Soy declines

With palm oil prices collapsing, it was hard for Chicago futures in rival vegetable oil soyoil to do anything else but fall too, although by a more modest 2.8% to 30.64 cents a pound for March delivery.

 

The contract, now down 11.9% for 2020, has gained some support from having run up less than palm oil last year, falling to an unusual discount at one point, with some decent US export sales data for the week to January 16 of 55,588 tonnes helping too, representing a two-year high.

 

And soyoil’s weakness in turn undermined Chicago soybeans, which for March stood down 0.7% at $8.91 ¼ a bushel.

 

Still, the soybeans have yet to test their intraday low of the last session, of $8.88 ¼ a bushel, with financial markets broadly taking a less dismal view of the coronavirus outbreak on Tuesday.

 

‘Think we would find a low’

That is not to say that the disease fears are over, with the latest death toll in China at 106 people, with more than 4,500 cases confirmed.

 

But the performance of risk assets on Tuesday was less dire than that of the last session, with the likes of Brent crude and Tokyo shares showing less marked declines, the latter ending down 0.6%.

 

London shares traded 0.4% higher in early trading, and Frankfurt stocks gained 0.2%.

 

In grains, Mike Mawdsley at First Choice Commodities said that “I would think we would find a low this week with the coronavirus panic going on, but time will tell”, with some late recovery in many contracts in the last session offering cause for hope.

 

‘Quality a concern’

Indeed, Chicago soymeal fell by the minimum $0.10 to $297.70 a short ton, after a relatively resilient performance in the last session too.

 

The feed ingredient tends to find some spreading action against fellow soybean processing product soyoil, but has also found support from a particularly strong week for US export sales to January 16, as Vicentin’s woes raise worries over shipments from top exporter Argentina.

 

Chicago corn for March shed a modest 0.2% to $3.79 ¾ a bushel for March delivery.

 

ADM Investor Services noted that already “US corn export prices are the lowest feed grain prices”.

 

That said, as CHS Hedging flagged, “this year’s corn quality remains a concern with the low test weight, higher moisture and high FM [foreign material].

 

“The FM seems to be the biggest challenge to control. It’s tough to handle this year’s corn without creating a significant amount of additional screenings.”

 

‘Keeps world prices firm’

Chicago wheat for March stood 0.2% down too, at $5.71 a bushel, although well above its intraday low of the last session of $5.59 ½ a bushel.

 

“Talk of lower EU supplies and slow Russia farmer selling keeps world wheat prices firm,” said ADM Investor Services.

 

Tobin Gorey at Commonwealth Bank of Australia said that “to boot, US winter wheat crop conditions declined to remind the market of worries about 2020 crops”.

 

The monthly rating of the winter wheat crop in Kansas, for instance, the top growing state, was put at 34% good or excellent, down 6 points month on month, with that for Oklahoma down 4 points at 36%.

 

That said, Kansas City hard red winter wheat, the type grown in Kansas and Oklahoma, fell by 1.0% to $4.81 ½ a bushel for March.

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