ao link

Markets

Linked In
RSS
https://twitter.com/Agrimoney
http://www.newsnow.co.uk/h/Industry+Sectors/Agriculture

Morning markets: Palm oil plunges, exposing industrial vs food ag split

TwitterLinkedineCard

Sure, month-ends have a reputation for bringing selling to ag markets, as funds tidy up positions.

 

But not always to the extremes seen in some markets in early deals on the last trading day of February.

 

Palm oil futures for May, for instance, plunged 7.0% at one point in Kuala Lumpur, extending their February decline to 12.1% on a benchmark contract basis, before recovering a bit of lost ground to stand at 2,310 ringgit a tonne, down 6.1% on the day, as of 09:50 UK time (03:50 Chicago time).

 

Goldman gloom

At the core of the continued decline, of course, are growing concerns across markets over the dent that coronavirus will bring to world economic growth.

 

Latest developments include the first case in sub-Saharan Africa, in Nigeria, while in Hong Kong, the government has quarantined a dog that tested “weak positive” for the virus, and whose owner was infected.

 

Goldman Sachs, factoring in “the likelihood that the virus becomes widespread”, forecast that US companies would “generate no earnings growth in 2020.

 

“Our reduced forecasts reflect the severe decline in Chinese economic activity in 1Q, lower end-demand for US exporters, supply chain disruption, a slowdown in US economic activity, and elevated uncertainty,” the investment bank said.

 

‘Just want to get out’

And after the late plunge in Wall Street shares, which ended up down 4.4%, having shown losses of more like 1% when US ag markets closed the last session, there was little hope of a positive performance in early Friday deals on ags.

 

This especially given month-end, let alone the prospect of a weekend, and two days of market closure in which the newsflow could go against investor positions.

 

“No one knows what will happen next, and with a weekend coming up, some just want to get out,” said Mike Mawdsley at First Choice Commodities.

 

“News over the recent weekends has not been good.

 

“Thus until something changes, a nervous trade exits.”

 

Industrials vs foods

But one mini-trend that does seem to be holding is a worse performance by industrial ags, demand for which looks more exposed to economic slowdown, over those focused on food, an ever-present need.

 

Sure, the performance of, say, Chicago soft red winter wheat futures, down 0.9% on the day to $5.23 a bushel, at their lowest level in more than two months, is hardly pleasing to ag bulls.

 

Chicago wheat is now down 6.0% for 2020 (actually on a spot, ie March, contract basis).

 

But that compares with a dive of more than 24% in Kuala Lumpur palm oil futures, on a third-contract basis, with the vegetable oil disfavoured by its use largely in making biodiesel, besides by the prospect of a seasonal uplift in South East Asian output.

 

Gasoil, while only trading a modest 0.7% lower in early deals on Friday, is down 28% for 2020 (and 13% for just the last week).

 

Palm oil is also facing the setback of increased barriers imposed by top importer India, which fostered last month a fall in imports of 19.7% month on month to 594,804 tonnes.

 

Imports of soft oils, meanwhile, soared 54% month on month to 562,319 tonnes, a trend Rabobank said overnight would likely continue over 2020, assuming current restrictions remain in place.

 

‘Weight of worries’

Cotton, another industrial ag, has also fared poorly, losing 10.1% this month, and 12.1% this year in New York on a spot (March) contract basis, and setting four-month lows.

 

The better-traded May lot stood a further 2.6% lower at 60.88 cents a pound in early deals, setting a five-month low.

 

Tobin Gorey at Commonwealth Bank of Australia, talking of a cotton market “rout”, said that “cotton prices are feeling the weight of worries about the Covid-19 epidemic’s impact on global economic growth”.

 

Louis Rose at Rose Commodity Group said that the cotton market had in fact “divorced itself from fundamentals.

 

“It is not that all fundamentals were bullish.

 

“But there is/has been notable demand for US cotton, China is making purchases for its strategic reserve,” while Australia is estimating “a very short crop”.

 

And with lower prices “a better and better case is being made for lower planted area versus the average forecast of US Department of Agriculture and National Cotton Council of 12.75m acres”.

 

‘Big buyer lurking?’

Friday’s particular weakness in palm oil futures did damage broader oilseed prices too, with values of rival soyoil for May standing down 2.0% at 28.61 cents a pound in Chicago.

 

This time soymeal headed in the same direction, after spreading in recent sessions has seen oil and meal values often diverge, with the May lot down 0.8% at $301.30 a short ton.

 

Meal values were undermined by a surprisingly large delivery overnight against the expiring March lot, of 1,237 contracts, suggesting that current Chicago values offered seller appeal.

 

Soybeans themselves for May stood 1.5% down at $8.81 ¼ a bushel.

 

(Even so, the oilseed is still marginally higher for this month on a front contract basis.)

 

“Soybeans’ resilience through this period has been notable,” CBA’s Tobin Gorey said, adding that “we wonder whether there is a big buyer lurking in the dark somewhere”.

 

‘End-users extending coverage’

Similarly, Benson Quinn Commodities said that “it feels like end-users are extending coverage in grains and soybeans on lower trade”.

 

The Philippines, for instance, were reported on Monday as a buyer of 275,000 tonnes of (feed) wheat in the latest of a string of purchases this week by end users.

 

Other buyers include South Korea, which has also bought a stack of corn, some reportedly from the US.

 

Still, Chicago corn futures for May stood 0.5% down at $3.66 ¼ a bushel, with the grain no down 4.8% for February on a spot lot (March) basis.

 

While “China has been a big buyer” of corn of late, it has been purchasing from Ukraine, Futures International’s Terry Reilly said. China has a longstanding corn-for-finance agreement with Ukraine.

 

“The Ukraine shipping line-up suggests nearly 500,000 tonnes could end up being shipped during February to China,” he said.

 

‘Slowing exports of DDGs’

Mr Reilly also noted further implications of coronavirus in that “US exporters are having a hard time securing containers used to move agriculture products from US ports to Asia due to the slow turnaround in China.

 

“This is slowing exports of DDGs”, or distillers’ grains, a byproduct of grain ethanol manufacture used as a high protein livestock feed.

 

As Peter Sands at shipping association Bimco noted a week ago, there are “massive labour shortages” in trucking in China.

 

“Anecdotal evidence suggests, that, in some provinces, less than 30% of the truck drivers have reported for duty.”

TwitterLinkedineCard
Related Stories

Producer, merchant positions in ags for week to April 13

Markets Extra lists the latest official data on commercial positions in ag commodity derivatives

Hedge fund positions in numbers for week to April 13

Markets Extra lists the latest official data on hedge fund positions in ag commodity derivatives, and how they have changed week on week

Evening markets: Grains suffer touch of late-week profit taking

The likes of corn and wheat trade lower in closing deals of a positive week. But the vegetable oil complex, and canola, stay strong

Failed hold-outs may foster dairy price gains at next week's GDT auction

Futures prices suggest modest gains in the offing at Tuesday’s GlobalDairyTrade auction - for whole milk powder, at least
Home | About | RSS | Commodities | Companies | Markets | Legal disclaimer | Privacy policy | Contact

Our Brands: Comtell | Feedinfo | FGInsight

© Agrimoney.com 2021

Agrimoney.com and Agrimoney are trademarks of Agrimoney Ltd
Agrimoney is part of AgriBriefing Ltd
Agrimoney Ltd is registered in England & Wales. Registered number: 09239069