The selling which kicked into the grain and oilseed complex in the last session extended, largely, into this one- although wheat futures were an exception, managing to recoup a few of their losses.
A particularly notable loser was palm oil which, having bounced 19% last month in Kuala Lumpur, continued is less impressive October performance, standing down 1.8% at 2,277 ringgit a tonne as of 09:25 UK time (03:25 Chicago time).
That took losses in three sessions to 6% for the benchmark December lot, which fell at one point below its 20-day moving average for the first time in a month.
OK, the worries remain about production ahead in the South East Asian heartland, amid dryness blamed on El Nino, and with smog stemming from a more preventable source, slash and burn agriculture, adding to the concerns.
At London broker VSA Capital, Edward Hugo told Agrimoney.com that sources in the region were telling him that it “is extraordinarily dry at the moment in some parts of Malaysia and Indonesia, which will impact fresh [palm] fruit bunch harvests in 2016.
“The ongoing haze will have a more immediate impact on production levels.”
But Malaysia still has hefty inventories of the vegetable oil to get through.
Indeed, forthcoming monthly data from the Malaysian Palm Oil Board are expected to show that stocks rose last month to 2.65m tonnes, according to a Reuters poll, their highest in nearly three years.
Exports are seen rising to 1.65m tonnes, from 1.61m tonnes in August.
But production is seen has having increased too, to 2.09m tonnes, in a month which often markets the seasonal high – a prospect seen by many as especially likely this year given the heat and haze.
Still, it is worth recalling comments earlier this week from Amar Douglas Uggah Embas, Malaysia’s minister for plantations, industries and commodities, who said that “there was a projection that Malaysia’s stocks might reach 3m tonnes by November.
“If it reaches that level, prices will likely come down and it is an overstock in the country.”
The weakness spread into rival vegetable oil soyoil too, which for December fell by 1.3% to 28.26 cents a pound in Chicago.
This despite talk of strong buying by India – albeit purchases not believed to have been targeted at US supplies.
“India has been a huge buyer of soyoil,” said Terry Reilly at Futures International.
“They picked up 350,000-400,000 tonnes over the past seven days, but most, if not all of it, will originate from South America.”
‘Producer selling picked up’
And with futures in soymeal, the other main soybean processing product, pretty static, soybeans themselves found headway difficult.
Chicago’s November contract was 0.5% lower at $8.86 ѕ a bushel, with sentiment little helped by its failure in the last session to break above the psychologically important $9-a-bushel mark
“Futures encountered technical resistance near $9 on Wednesday, and backed away,” said CHS Hedging, noting that higher prices were luring out hedging by farmers.
“Producer selling has picked up during this rally.”
And well it might, with the prospect on Friday of a key US Department of Agriculture Wasde report which is expected to lift the official estimate for the soybean yield, by 0.1 bushels per acre to 47.2 bushels per acre according to a Bloomberg survey.
While the impact of an upgrade is seen as being more than offset by a cut to the acreage number, reflecting losses to a wet spring, the uncertainty over what the data will show, and the potential for them to cause another leg down in futures, may well entice some producers to settle for current prices.
Still, there are more immediate data to consider too, with the USDA later to unveil weekly US export sales statistics expected to come in at 700,000-1.20m tonnes for soybeans, down from the 2.51m tonnes the previous week, when volumes were swollen by a series of Chinese orders.
Meanwhile, a report from USDA staff overnight in Brasilia stood by expectations of a record 97m-tonne Brazilian harvest ahead, despite a slow start to plantings, as dryness besets major growing regions.
“In Mato Grosso, the largest soybean producing state in Brazil, farmers are still cautiously waiting for rains to increase the planting progress,” the report said.
However, the lower real has “turned out to be a saving grace” for farmers, in raising the value in local terms of soybeans, which are denominated in dollars, and so “incentivising a slightly higher soybean area”.
‘Harvest lows are in?’
For corn, Friday’s USDA Wasde report is expected to cut the harvest forecast to reflect both lower area and yield expectations, although prices have risen largely to reflect this.
Indeed, it is “looking increasingly likely harvest lows are in for corn prices, although Friday’s data sets could still offer surprises,” said Tregg Cronin at Halo Commodity Company.
(Harvest typically brings a seasonal low in values, as the last of risk premium is removed, and extra supplies weigh on prices.)
And it could take a bit of a surprise to drive corn much higher for now, with CHS Hedging noting how the December contract failed to make it to $4.00 a bushel in the last session, stalling 0.25 cents short before retreating.
“Technical resistance proved thick near $4 a bushel for the December contract,” the broker said.
Corn for December dropped 0.2% to $3.95 a bushel.
‘No relief in prospect’
Maybe the decline would have been more severe were it not for fresh gains in wheat futures, which in Chicago recovered 0.3% to stand at $5.18 Ѕ a bushel for December delivery, amid continued concerns over weather in many countries.
“There is still plenty of attention being paid to wheat dryness both in the US and globally as rain chances for the US Plains have fizzled this week,” Mr Cronin said.
Indeed, thinking of the US, Kansas City hard red winter wheat, as grown in the dry southern Plains, continued to recover ground against Chicago soft red winter wheat, as grown in the Midwest, adding 0.5% to $5.10 Ѕ a bushel for December delivery.
Meanwhile, there is “no relief in prospect for dry regions around the Black Sea,” said Tobin Gorey at Commonwealth Bank of Australia.
Mr Cronin said that for Russia, weather groups were saying that “as much as 45% of the intended wheat area is being affected with moisture shortages.
“Poor establishment rarely puts the final nail in the coffin for a wheat crop, but obviously another bumper harvest could be hamstrung by a continuation of dry weather into dormancy.”
In Australia, meanwhile, Pentag Nidera said that reports from the early harvest in Queensland “would indicate that the earlier crops have handled the dry September better than the later ones, with barley holding up better than wheat”.
Barley, which has a shorter growing season, will have been less vulnerable to recent heat and dryness.
“It is expected wheat production in New South Wales will not reach its production potential,” the grain trader said, cutting its forecast for the national crop to 24.5m-25.0m tonnes.
Steve Dalton at AdVantage Commodities said that the picture for Australia was something of a “mixed bag”.
“There are some good areas, but some quite poor ones too,” with western New South Wales among less promising parts.
Still, Sydney wheat futures for January eased 0.3% to Aus$302.00 a tonne, feeling pressure from the negative performance by the grain in Chicago in the last session.
Back to the US, and wheat export sales data later are expected at 175,000-375,000 tonnes for wheat, a rise of at least 100,000 tonnes on the previous week’s poor sales.
Corn export sales are expected at 550,000-750,000 tonnes, at best matching the previous result.
(Source – http://www.agrimoney.com/marketreport/am-markets-palm-oil-leads-retreat-in-ag-prices—bar-wheat–3329.html)