On the face of it, comments overnight by Janet Yellen, the chair of the Federal Reserve, saying that a US interest rate rise was still on the cards for later this year might be seen as a negative for risk assets.
And especially for dollar-denominated exports such as many commodities, in likely meaning a stronger greenback, and so making them less competitive.
But of course that would be to ignore the market reasoning after the Fed last week kept rates on hold, citing economic uncertainty in some emerging economies.
The decision was ultimately taken as a negative by risk investors, who focused on the economic concerns.
So the broader market mood early on Friday was actually not so downbeat, with US Treasury yields rising, as were shares in many markets.
London’s FTSE 100 share index got off to a storming start, adding 1.5% at its open, with Paris stocks up 1.9%, and Frankfurt ones gaining 2.1%.
But, with dollar gains curtailed to 0.3% against a basket of currencies as of 09:30 UK time (03:30 Chicago time), many commodities managed a firm, if not sparkling, start too.
Brent crude was up 0.5% to $48.42 a barrel, with light crude adding 0.9% to $45.36 a barrel.
Agricultural commodities were broadly positive too, particularly soybeans, ahead of what could be a big couple of days for the oilseed.
This after a Chinese delegation, including Cofco and Sinograin, to the US late on Thursday signed a promissory purchase for a stack of US soybeans – 13.18m tonnes, valued at about $5.3bn.
“Anytime an agreement like this is made, it is great for US soybean farmers,” said Laura Foell, chair of the US Soybean Export Council chair and a soybean grower herself.
But does the agreement really amount to more than a, up, hill of beans when they concern “frame” contract, of which the details will be sorted later, and China, which imported nearly 28m tonnes of US soybeans anyway last season, was already expected to import nearly 30m tonnes in 2015-16?
Furthermore, while most of the 13.18m tonnes of soybeans were for this season, some were booked for export in 2016-17.
‘Brace for announcements’
Still, while these agreements have become annual events, Thursday’s was unusually large, a record in fact.
“Last year, China signed for 4.8m tonnes of soybeans valued at $2.3bn,” Terry Reilly at Chicago broker Futures International noted.
And they do have a habit of precipitating export sales announcements to China, as frame agreements are formalised.
“Trade will brace for large US soy export announcements in coming days,” said Richard Feltes at RJ O’Brien said.
‘Record may be shattered’
In fact, imminent export sales could be huge.
Mr Reilly noted that the largest one-day soybean export sales announcement by the US Department of Agriculture, under its 24-hour reporting system ,was 2.923m tonnes in February 2012. (A history of big export sales can be found here.)
“We think that maybe shattered over the next one-to-two business days,” he said, highlighting improved economics for Chinese soybean processors now that the country’s huge pork industry is back on its feet.
As of Thursday, “China cash crush margins were running at $0.60 a bushel, up from the previous day, and compares to $0.33 for the previous week,” if down from $1.17 a bushel a year ago.
‘Improving yield reports’
Still, matters are not all going the way of soybean bulls, with improving talk over US harvest yields.
“Harvest continues with improving yield reports which limits gains,” said CHS Hedging.
“Yields tallied so far suggest the USDA is overstating the Illinois corn yield while western Corn Belt soybean yields could be higher than USDA’s September forecast,” Mr Feltes said.
Bulls “must consider the possibility” that a downgrade expected to the USDA’s estimate for domestic soybean sowings this year “will more than offset any possible acreage loss”.
Furthermore, there is the possibility of rain next week for central Brazil, where moisture is needed in states such as Mato Grosso for farmers to start soybean seeding in earnest.
And back in the US, there is still harvest pressure on prices to think about, and the potential for fresh supplies to flood onto the market and weigh on values.
At Halo Commodity Company, Tregg Cronin said that while many investors were “debating whether harvest lows have been witnessed already, with harvest not passed 20% on either, it is difficult to think this is the case”.
Still, Chicago soybean futures for November added 0.7% to $8.74 ½ a bushel in Chicago, confronting their 10-day and 20-day moving averages.
‘Farmer selling is light’
Corn was a little higher too although, without the pull from a large Chinese order, and talk of Brazilian supplies being imported to the US thanks to price differentials, up only 0.1% to $3.81 ¾ a bushel for December delivery.
The US harvest is as big consideration here too, with harvest pressure seen as a big contributor to a drop in futures in the last session.
Still, CHS Hedging noted that “parts of the western Corn Belt experienced heavy rainfall totals in the past 24-36 hours which will slow harvest”.
Meanwhile, farmer selling of corn “is light – some end-user basis remains firm awaiting harvest”, the broker said.
‘Minimal precipitation chances’
It was at least some reassurance to corn investors that wheat futures, which have been a leader of late, arrested their decline of the last session, and stood up 0.2% at $4.98 ¼ a bushel for December delivery.
That kept the contract above its 40-day moving average, which earlier this month had proved a bit of a ceiling to price rises.
OK, there remains plenty of talk over dryness in the former Soviet Union, as farmers attempt seedings ahead of the 2016 harvest, with in eastern Ukraine “some areas in going 20+ days without rain”, Mr Cronin said.
Mr Reilly said that “precipitation chances in the dry regions of southern Russia and Ukraine are minimal over the next one-to-two weeks”.
And there are concerns about frost damage, as well as a retreat in rains, for Australia’s wheat crop at or approaching the harvesting stage.
“South eastern Australia saw frost and a few light freezes” on Thursday, Mr Reilly said.
“Additional frost may impact south eastern South Australia and Victoria early next week.”
Still, on the more positive side for weather, “recent rains in parts of western Kansas have given those farmers the confidence to resume seeding winter wheat”,
Beyond Chicago, Kuala Lumpur palm oil returned from a one-day holiday in rude health, soaring 3.0% to 2,308 ringgit a tonne, helped by weakness in the ringgit, down by nearly one-fifth so far in 2015.
Data from cargo surveyor Intertek showed Malaysian palm shipments for the first 25 days of September up 3.6% month on month, while there are mounting ideas of El Nino-induced dryness hampering South East Asian production ahead.
Earlier, palm oil futures hit a three-month high of 2,317 ringgit a tonne.
(Source – http://www.agrimoney.com/marketreport/am-markets-soybean-futures-gain-on-hopes-of-huge-us-exports–3311.html)