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Morning markets: Palm oil futures dive, despite bigger-than-expected stocks decline

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Palm oil showed where the default mindset was for ag investors to start the week – ie, somewhat negative.

 

Sure, there was excuse for buying the vegetable oil, with monthly data from the Malaysian Palm Oil Board showing Malaysia’s palm stocks shrinking some 4,500 tonnes further than investors had expected last month, to 1.76m tonnes.

 

At that level, stocks – falling for an 11th successive month - were at their lowest since June 2017, reflecting weakness in production which, at 1.17m tonnes, was some 38,000 tonnes short of investor expectations, and at its lowest in nigh on four years.

 

Output in Malaysia, and other parts of South East Asia, has been undermined - as REA Holdings underlined on Friday - by a hangover from dry weather and from a lack of fertilizer during the low-palm-price period which lasted until late October.

 

Export decline

But one disappointment for palm oil bulls from Monday’s data was that it showed Malaysia’s exports last month below forecasts too, by nearly 70,000 tonnes, hitting an 18-month low of 1.21m tonnes.

 

This represented a sizeable 28% drop year on year, and came for a month when shipments were affected by the knock-on effects of a political spat with India, the top palm oil importing country, and as China’s purchases ahead of Lunar new year were slowing.

 

Malaysia’s export performance has worsened further this month, with shipments for the first 10 days of February down 20% from the same period of January according to AmSpec Agri, with rival cargo surveyor ITS putting the decline at 27%, and SGS at 29%.

 

Energy depressant

 

There was a further negative for palm oil in that gasoil, to which it is linked via its use as a raw material for biodiesel, fell by 1.8%, amid further weakness in energy markets, which have been in the frontline for selling over coronavirus fears.

 

Indeed, according to the Financial Times, Chinese energy executives are projecting that the country’s oil consumption will plunge by 25% this month thanks as fears over the virus, and the lockdown prompted by it, paralyse travel and shut down industrial activity.

 

Palm oil futures for April stood down 2.0% in Kuala Lumpur as of 2,757 ringgit a tonne as of 09:45 UK time (03:45 Chicago time).

 

And nor were they alone in the ag complex in showing early decline.

 

‘Corn basis has been sacked’

Corn futures for March shed 1.0% to $3.79 ½ a bushel, undermined in part by the coronavirus worries, which were taking the upper hand in share markets too, with stocks falling by 0.6% in Tokyo and Hong Kong, and opening a touch lower in Europe too.

 

Terry Reilly at Futures International, flagging the “threat that China may not buy $32bn of American agriculture goods over the next two years” because of the virus, reported that “US corn basis has been sacked since the outbreak of the coronavirus”.

 

At First Choice Commodities, Mike Mawdsley late on Sunday said he was “hearing the coronavirus shows signs of spreading and death toll up to Sars levels.

 

In fact there are now more than 40,000 coronavirus cases, and more than 900 deaths, in China.

 

“There is no sign of containment of this virus yet, thus talk of weaker markets overnight.”

 

Sowings ideas

Meanwhile, also as a negative Imea late on Friday reported a large rise, of 17.0 points to 38.9% completion, in progress of safrinha corn sowing in Mato Grosso state, Brazil’s top producer of the grain.

 

And there are some large figures floating around too for US plantings this year, with Karl Setzer at AgriVisor saying that some estimates “have reached 95m acres, roughly 5m more than the US planted last year”.

 

That said, he had some doubts, saying that while such an area is “not impossible, the US will have to see near-perfect weather conditions for corn acres to reach this level”.

 

Currency factor

Chicago soft red winter wheat futures for March stood down 0.5% at $5.55 ¾ a bushel.

 

Besides pressure from coronavirus, “improving soil moisture over the past week for the US Great Plains could boost crop conditions for US winter wheat,” Mr Reilly said

 

Kansas City hard red winter wheat, as grown in the Plains, shed 0.5% to $4.70 ¼ a bushel.

 

Mr Setzer said that “another factor that has impacted wheat is the value of the US dollar”, which “has rallied to its highest level since October 2015 recently which is weighing on US exports.

 

“This is especially the case for wheat as it is much more of a global crop and highly sensitive to currency valuations.”

 

Certainly, “French wheat is still showing a good level of competitiveness on the international stage especially versus Black Sea origins,” Agritel said, noting that last week “two or three cargoes were sold to China”.

 

“French wheat is cheapest in the world,” Mr Reilly said.

 

’Managed money too short’

 

Back among oilseeds, soyoil followed rival palm oil lower, albeit by a more modest 0.7% to 30.76 cents a pound in Chicago for March.

 

But soybeans scraped together a 0.1% gain to $8.82 ¾ a bushel, amid some talk of spreading against grains, but also after regulatory data late on Friday showed hedge funds having already sold down heavily in the oilseed, to create a substantial net short, of more than 80,000 lots.

 

“I would lean towards managed money being too short in soybeans and soymeal,” said Benson Quinn Commodities.

 

Soymeal gained too in Chicago, by 0.4% to $290.40 a short ton for March, moving the opposite way to soyoil as so often happens in two commodities regularly spread against each other.

 

‘Notable support’

In New York, cotton for March gained 0.3% to 67.98 cents a pound, moving away from levels where it appears to be finding end-user buying (from other countries than China).

 

“The market seems to find notable support at lower price levels, near 67 cents in the March contract,” said Tobin Gorey at Commonwealth Bank of Australia.

 

Meanwhile, Louis Rose at Rose Commodity Group said that official data on classing of the latest harvest “are beginning to suggest that the USDA will likely have to ultimately lower their 2019 production estimates, perhaps to less than 20m bales”.

 

The current estimate is 20.10m bales, with the USDA of course having a Wasde briefing on Tuesday in which a downgrade could be made.

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