Has the storm in commodity markets passed?
The last session gave hope that August will prove less fearsome for raw material bulls than July, which was one of their worst months in decades, amid growing fears for China, a huge commodities buyer.
But the CRB index managing to crawl back above 200 points in the last session, after hitting a 12-year low on Monday, raised some ideas that an easier time may lie ahead.
“Does the CRB uptick signal a near-term bottom in commodities, especially crude oil, that has served as a strong undertow to ag markets?” asked Richard Feltes at Chicago broker RJ O’Brien.
He wasn’t actually too optimistic on crude prices, flagging weakened economic growth in China, the top oil importer, as well as Opec overproduction.
Still, Brent crude, which ended the last session 1 cent shy of $50.00 a barrel, strengthened in early deals on Wednesday, as did many agricultural commodities, helped in part by an ease in the gloom over China.
A survey of China’s services sector showed activity grew last month at its fastest pace since August last year, with the Caixin/Markit purchasing managers’ index for the sector rising to 53.8 from June’s 51.8.
(Any reading above 50.0 indicates expansion.)
“Anecdotal evidence suggested that stronger underlying client demand and new customer wins led to increased new work at service providers,” Caixin said.
And there were other reasons too for grain prices to consolidate after their falls of last month.
ADM Investor Services flagged the worsened, although not threatening, US weather outlook, which showed a “slightly drier five-day forecast for the eastern Corn Belt”.
Mr Feltes said that, after a largely benign July, “follow-up August rains are up for discussion”.
And this when weather worries are still abroad in some other countries.
“Forecasters still expect no change in the dry soils in parts of Europe, Canada and Argentina,” said Tobin Gorey at Commonwealth Bank of Australia.
Many investors also see technical signals as proving a headwind to sellers, with ADM Investor Services talking of “oversold” markets, and Mr Feltes saying that “chart action suggests the early stages of a consolidation period for row crops, now that recent rains are fully priced”.
And there is the prospect of the US Department of Agriculture’s monthly Wasde report, next Wednesday, to focus on too, which is expected to cut the estimate for US soybean sowings this year, following wetness setbacks to late plantings, besides making any yield changes.
“The release of more private sector crop estimates is serving to underscore the wide range of opinions on 2015 row crop production,” Mr Feltes said.
RJ O’Brien itself estimated soybean plantings at 83.6m acres, 1.5m acres below the current USDA estimate, and the yield at 44 bushels per acre, compared with the official figure of 46.0 bushels per acre.
China is still creating some long-term uncertainties for ag markets, with much discussion over the potential for corn subsidy changes, after Agrimoney.com highlighted the issue last week.
At Futures International, Terry Reilly flagged “talk China may consider alternating its price support system, in part to get high domestic corn prices near the rest of the world.
“Our thinking is any negative change in the price support policy could contract the corn area for upcoming crop years, thus making China that more dependent on grain/feed import alternatives, including feed wheat.”
Still that begs the questions of “where would the area go? A return to oilseeds perhaps?” Or maybe “alternative feed grains”?
Whatever, corn futures for September nudged 0.2% higher to $3.69 ½ a bushel as of 09:00 UK time (03:00 Chicago time), while the best-traded December lot added 0.1% to $3.79 ¼ a bushel.
There was also talk that the first day of the MDA Weather crop tour estimated the average corn yield in central and northern Illinois at 176.6 bushels per acre, well below the 199.4 bushels per acre it saw last year (which ended up as setting a yield record, nationwide).
Soybeans for August gained 0.4% to $9.80 a bushel, while the best-traded November lot added 0.6% to $9.47 ¾ a bushel, testing its 10-day moving average.
Elsewhere in the oilseeds sector, Winnipeg canola for November edged 0.2% higher to Can$507.00 a tonne, continuing a decent recovery from a low of Can$487.00 a tonne set a week ago, and holding above 10-day and 50-day moving averages.
Wheat this time kept up with the pace too, adding 0.6% to $4.96 ¼ a bushel in Chicago for September delivery.
Wheat importers are embracing “hand-to-mouth coverage until/unless the Australian crop is threatened”, Mr Feltes said.
And the crucial period there has not arrived yet, with CBA’s Tobin Gorey telling Agrimoney.com that while conditions currently are “not too worrisome”, it is the “finishing rains over which there is the biggest uncertainty, regarding the El Nino effect” – finishing meaning providing the moisture needed to maximise grainfill and yield.
Signals of the El Nino, which often brings unduly dry weather to eastern Australia, are after all still strengthening.
Sydney wheat itself settled unchanged at Aus$298.00 a tonne.
Still, back to demand, and one support came from the unveiling by Gasc, the Egyptian grain authority, of its latest tender.
While US wheat is unlikely to win, when results are announced later on Wednesday, there has been talk of French grain being offered more cheaply than the Black Sea supplies which have dominated Gasc auctions so far this season.
(Source – http://www.agrimoney.com/marketreport/am-markets-grains-gain-amid-ideas-of-end-of-commodity-rout–3248.html)