The first offering of agricultural commodity data went, marginally, bears’ way – on paper, at least.
Will the main course, the US Department of Agriculture’s monthly Wasde world crop supply and demand report?
The initial statistics on Friday came from the Malaysian Palm Oil Board, which estimated Malaysian palm oil stocks at the end of last month at 2.15m tonnes – down 4.3% month on month, but a little above the 2.12m-tonne figure that analysts had expected.
Still, the important exports (up 5.2% month on month) and production (down 2.6%) components of the balance sheet came in in line with expectations.
While, as an extra point in bears’ favour, data from cargo surveyor Intertek pegged exports so far this month tumbling by 33% over the same period of June, investors decided that Kuala Lumpur futures had suffered enough for now, especially with Chinese prices rising.
Kuala Lumpur palm oil futures for September stood up 0.1% at 2,190 ringgit a tonne as of 09:00 UK time (03:00 Chicago time).
Small price changes were the order of early deals in Chicago too, with investors looking largely satisfied with the positions they have ahead of the Wasde.
The report is expected, for US corn, to show a cut of 1.4 bushels per acre to 165.4 bushels per acre in the yield estimate for this year, with the figure for inventories as of the close of 2015-16 cut by 231m bushels to 1.54bn bushels, according to a Reuters survey.
For soybeans the yield estimate is seen being cut by 1.0 bushel per acre to 45.0 bushels per acre, and the carryout forecast by 105m bushels to 370m bushels.
Wheat, meanwhile, is expected to suffer a small US harvest downgrade, of 25m bushels to 1.48bn bushels, in the main relating to the inundated, Midwest-grown, soft red winter crop.
The white winter wheat harvest, as grown in the Pacific North West, which is suffering some of the drought seen in Canada, is expected to see a downgrade too.
As ever ahead of Wasdes, there is a debate going on as to what the USDA data will show, with one point of contention, for instance, over whether the USDA will cut its soybean yield estimate at all relatively early in the growing season.
Terry Reilly at Country Futures noted research that since 1996, the USDA has only changed its yield estimate in a July Wasde three times, in 2004, 2008 and 2012, all downgrades.
For corn, the yield estimate has been changed twice as often, comprising four downgrades and two upgrades.
“Given that 2004, 2008, and 2012 were extraordinary weather years for the US, we are still thinking there is a 50:50 chance USDA will change the soybean yield,” said Terry Reilly at Futures International, adding that, if there is a downgrade, there is a “bias it will go lower by 2 bushels per acre”.
Expectations vs outcomes
Meanwhile, at Commonwealth Bank of Australia, Tobin Gorey said that, given gains that investors have already factored into prices to allow for Midwest rains, Canadian drought etc, it may take a significant Wasde surprise to lift futures much further.
“Analysts are taking a bullish turn with their views on [the Wasde] report,” he said.
“And traders are getting positioned for bad news on crops.
“That action probably means the report will have to be a ‘blockbuster’ to move markets further.”
On the other side of the coin, at Benson Quinn Commodities, Nicholas Sax said that for corn, a better-than-expected yield figure might not be taken too badly by markets.
“As it sits now the market has priced in a risk premium considering recent events.
“But if the USDA elects to push yield changes down the road I wouldn’t be surprised if the market writes it off and continues trading in the recent range.”
Still, it was some help to bulls in early deals that all was looking brighter on the eastern front, with Shanghai shares extending their recovery, and adding 4.6% in early deals, albeit after further extreme measures by Chinese authorities to shore up buying.
In their latest measure, on Friday, regulators ordered listed companies to submit plans to stabilise their share prices, using measures such as stock purchases by major shareholders and company executives, and share buybacks, the state-run Securities Times said.
Buying was evident in Chinese agricultural commodity markets too, with Dalian soybeans for September soaring 4.1% to 4,196 yuan a tonne, and palm oil rising by 3.3% to 4,882 yuan a tonne, outpacing its Kuala Lumpur peer.
On the Zhengzhou, softs fared a bit less well, but were still positive, with sugar for January adding 1.7% to 5,467 yuan a tonne, and cotton (of which more later) settling up 1.7% at 12.985 yuan a tonne.
China is a huge buyer of commodities, including ags, meaning sentiment there has significant implications for world prices.
It was also a help to investor sentiment that Greek concerns are on the wane too, as creditors consider a new bailout package from Athens.
The dollar eased 0.3% as global economy fears eased a touch, with a falling greenback positive for the value of dollar-denominated assets in making them more affordable as exports.
And in Chicago, soybeans indeed added 0.2% to $10.28 ½ a bushel for August delivery, and 0.3% to $10.19 a bushel for the best-traded, new crop November lot, even though, on the export front, China is actually seen as having switched a lot of its buying to Brazil.
“There continues to be chatter in the trade of China buying South American soybeans for fall slots that would normally be sourced from the US,” CHS Hedging said.
Soft red winter wheat, meanwhile, gained 0.1% to $5.79 a bushel for September, despite its own US export woes.
“Basis at the Gulf for soft red winter wheat reportedly is the lowest in two years as harvest progresses with little export interest,” CHS Hedging said.
Still, on the more bullish front, CWB late on Thursday, raising its forecast for farmers’ returns from its crop pools, highlighted the setbacks that poor weather is having on crops worldwide, including Canada.
For durum wheat, for instance, the group noted that “export business continues to be at a standstill in Canada as farmers are reluctant sellers due to the production uncertainty”.
Benson Quinn Commodities noted improved technical factors too, flagging “would-be sellers’ concern with the supportive chart formation that has been developing in the wheat markets”.
The charts are now “hinting at the development of a bull flag”, a formation signalling further price gains.
“While I can’t find a solid reason for the wheat market to rally from the current levels, I can see why the short position holder is giving this formation some respect,” the broker said.
Still, Kansas City hard red winter wheat underperformed, flat at $5.79 ¼ a bushel for September, after poor US export sales data on Thursday, showing net cancellations of 25,300 tonnes.
Corn eased, by 0.1% to $4.28 ½ a bushel for September delivery and 0.1% to $4.38 ½ a bushel for the key new crop December lot.
In New York, cotton for December gained 1.1% to 66.57 cents a pound, helped by the rise in Zhengzhou prices.
The cotton market in China, the top consumer and importer of the fibre, is particularly important for investors at the moment, with the country on Friday starting a sell-down from its huge state inventories.
US export sales data on Thursday were mixed for the fibre, coming in at a modest 36,000 running bales for this season, including Pima, although 2014-15 does only have until the end of the month left to run.
Actual exports of 221,000 running bales were deemed strong by investors, and seen as potentially paving the way for an upgrade in the Wasde to the US forecast for exports in 2014-15, and downgrade to the carryout stocks estimate.
(Source – http://www.agrimoney.com/marketreport/am-markets-china-revival-holds-ags-steady-ahead-of-us-data—3217.html)