Price falls are beginning to become a bit of a habit.
Shares eased in Asia, with Toyko’s Nikkei index falling by 1.1% and Shanghai stocks by 1.7%, spurred by worries about the next chapter of the Covid-19 pandemic.
Brent crude slid by 0.8% and, although in one mercy for prices of dollar-denominated commodities the dollar recovery stalled, less helpful was a 0.2% dip in China’s renmimbi. That trimmed further the buying power of the currency of the world’s top ag importing country.
Overarching pressure is coming from worries about the next chapter of the Covid-19 pandemic, and its knock-in effects, underlined overnight in comments from Federal Reserve chairman Jay Powell, urging Congress to pass a new US fiscal stimulus package.
“The risk is,” Mr Powell said, that without support the unemployed would eat through their savings, “their spending will decline, their ability to stay in their homes will decline, so the economy will begin to feel those negative effects at some time.
“I think that it is likely that more fiscal support will be needed.”
Declining open interest
For ag prices, of course, there is at least some scope for resistance from Covid-19 effects, through the oft-quoted observation that “people have to eat”.
But one factor undermining potential resilience is the increased interest in the sector by ags, which having built up their largest net long in the sector in four years, are now being tempted by broader market sentiment to sell-up and move on.
Open interest, ie the number of live contracts, in Chicago soybean futures fell by 3,999 lots in the last session, with that in Kansas City hard red winter wheat down 1,673 contracts, while Chicago soft red winter wheat saw a smaller fall, of 471 lots.
‘How long, how far’
Then there is harvest pressure too, bringing extra crop supplies to weigh on prices.
Terry Reilly at Futures International noted a double whammy to corn and soybean markets of “profit-taking and harvest pressure”, adding that with the “run-up in soybean prices over the last couple weeks, the beans are going from combine to market”.
“Good US Midwest weather should help harvest and help fill the demand pipeline.”
“Corn and soybeans are acting like harvest is upon us - which it is,” said Mike Mawdsley at First Choice Commodities, adding that “after six weeks of rally, it was time for a breather.
“Question is, how long is the breather, and how far may prices drop?”
That time of year
The trouble is for bulls that there are other clouds on the horizon too to make investors think twice.
Sean Lusk at Walsh Trading noted not only “potential harvest pressure” but “month- and quarter-end profit taking, and the quarterly stocks report could provide further pressure in the soybean and corn markets near term”.
The US Department of Agriculture will on September 30 reveal data on US grain stocks as of the start of the month – a quarterly briefing which has a reputation for causing price volatility.
‘This year is different’
Not, it has to be said, that Mr Lusk was too downbeat on prices, of the oilseed at least, saying that “I wouldn’t be shorting the front months outright futures contracts at this point in soybeans.
“Normally I think you would, but this year is different.
“Given we finally have an edge in the export market in the near term as Brazilian supplies are depleted, anything that enters into the market that is deemed bullish from a supply side standpoint,” eg lower production downgrades, “could create a squeeze in the front month contracts”.
He suggested instead selling the July 2021-November 2021 soybean futures spread, “and use a tight stop”.
More from the demand perspective will be known later, with US export sales data for last week expected at 250,000-600,000 tonnes for wheat, compared with 335,727 tonnes the week before.
For corn, the figure is expected at 1.05m-1.80m tonnes, compared with 1.61m tonnes the previous week.
And for soybeans, export sales are expected at 2.00m-3.00m tonnes, compared with 2.46m tonnes the week before.
Investors will also be looking out for any USDA announcements of large sales made through its daily alerts system – although even so, there is some idea that China, the driver of the strong US sales performance of late, may be near-sated from this origin.
“Some feel China buying of US soybean is near 29m tonnes, with most looking for them to buy a total of 32m tonnes from the US,” said ADM’s Steve Freed.
“This could mean they are close to being done buying US soybean until next summer.”
Certainly, investors were not in early deals betting on a bullish demand surprise, sending the Chicago November soybean contract down 1.1% at $10.03 ½ a bushel as of 10:15 UK time (04:15 Chicago time).
The lot is now down 3.8% for this week.
This time, soymeal failed to offer support, shedding 1.0% to stand at $341.10 a short ton for December.
‘May limit further gains’
Yes, futures in soymeal have been “soaring as US processors take some seasonal maintenance”, Mr Lusk said, with reportedly about five US plants having temporarily halted operations last month, creating a squeeze on meal supplies.
This when “export demand is improving as Argentina crush has slowed and speculators are actively unwinding previously established long soyoil/short soymeal spreads.”
As Benson Quinn Commodities added, “Argentina continues to be plagued by currency volatility, lack of producer selling and political strife”.
However, export markets “now appear to have US values higher than those offered from Brazil or Argentina which may limit further gains in meal”.
‘Largest bearish movement’
Soyoil for December, meanwhile, continued its descent, shedding 1.5% to 32.30 cents a pound – taking to 8.1% its slump so far this week.
Vegetable oils - heavily exposed to the energy markets through biodiesel and to coronavirus restrictions through foodservice use - are proving particularly vulnerable to the revived Covid-19 concerns.
“The largest bearish movement has been seen on veg oils,” said Agritel.
And China demand concerns are particularly acute here too, with the Dalian January soyoil contract shedding 2.4% on Thursday to 6,942 yuan per tonne, while rival palm oil tumbled by 2.8% to 5,958 yuan per tonne.
In Kuala Lumpur, palm oil for December dropped 2.3% to 2,794 ringgit a tonne – down 9.3% for this week so far.
Grain prices fall
Back in Chicago, corn futures for December shed 1.2% to $3.64 a bushel, falling below their 20-day moving average.
Wheat futures fell by 1.2% too, to $5.42 ½ a bushel in Chicago for December, despite a couple of factors in their favour.
One is the fact that the northern hemisphere wheat harvest is now all but over, limiting harvest pressure, and another is the dryness concerns remaining for Argentina’s crop, as harvested later in 2020, besides for the former Soviet Union winter grains currently being seeded.
‘Consequences could be significant’
“The prospects for rain expected next week in the Black Sea area are gradually diminishing,” said Agritel.
“Western Ukraine should experience decent rainfall over the next few days, but the situation is not expected to improve significantly for the rest of the country,” nor for European Russia.
“In this context, the consequences on the winter wheat, barley and rapeseed surfaces could be significant despite reassuring communication from the Russian authorities considering that sowing progress figures are as good as in recent years at this time of the year.”
At Commonwealth Bank of Australia, Tobin Gorey said that “weather forecasters continue to expect little improvement to soil moisture in winter wheat areas of Ukraine, Russia and Kazakhstan.
“And the same can be said for significant chunks of US hard red winter wheat regions too,” where dryness is also a concern as winter sowings advance.
In New York, cotton futures for December fell too, by 0.6% to 64.86 cents a pound, although proving remarkably resilient overall, given the fibre’s Covid-19 exposure, with prices down a modest 1.2% so far this week.
“The market continues to find solid support” at about 65 cents a pound, Mr Gorey said.
Louis Rose at Rose Commodity Group said that the “the remnants of tropical storm Beta are beginning to drop significant rainfall across the mid- and southern Delta”, undermining US harvest prospects.