The recovery in the real has undermined the case for weaker US grain prices, Morgan Stanley said, flagging a boost too to markets from an improvement in energy values.
The Brazilian real has recovered more than 11% against the dollar after, at R$4.2482, hitting its weakest on record on September 24, before Alexandre Tombini, governor of the country’s central bank, underlined his willingness to use foreign currency reserves to stem the decline.
And with the dollar losing ground against other currencies too – shedding 1.5% on a trade weighted basis on the same timescale as continued emerging market worries have curbed expectations of a rise in US interest rates – the moves in foreign exchange “may mitigate US grain export downside”, Morgan Stanley said.
Morgan Stanley said that the currency moves had improved noticeably the competitiveness of US supplies, with a weaker dollar improving the affordability of dollar-denominated exports for buyers in other currencies.
While US corn was still more expensive than Brazilian supplies, the premium had narrowed to about $0.40 a bushel from “as much as $0.70 over last month”, as measured on a delivered basis to Japan, a major importer of the grain.
“US soybeans were offered at par with Brazilian supplies on Friday, after being offered as much as $0.40 a bushel over last month,” as measured on a delivered basis to China, the bank said.
“This improvement in US competitiveness mitigates the bear case for US export demand for the time being.”
‘Eased the downside risk’
Furthermore, the rise in oil prices “may mitigate worst case for biofuel demand”, after a rise of some 9% in Brent crude so far this month, taking it back over $50 a barrel.
Price dynamics in August, when oil futures hit their low, raised a threat over the competitiveness of US ethanol exports to destinations not forced by mandates to blend the biofuel into gasoline.
“Since then, higher petroleum prices have eased the downside risk to US ethanol exports and corn industrial demand.”
The bank said it was “bullish” too on soyoil, a major feedstock for biodiesel plants, “as higher crude oil prices offset the impact of higher vegetable oil prices on biodiesel industry margins”.
The comments come as soyoil futures indeed rose on Monday, adding 1.2%to 28.67 cents a pound in Chicago for December delivery, up some 7% from a contract low set in August.
The rise was seen as helped by 1 .8% gain in prices of rival vegetable oil palm oil in Kuala Lumpur, after data showing that Malaysian inventories rose less last month than investors had expected.
Meanwhile, brokers are also mulling revisions by the US Department of Agriculture on Friday in its benchmark Wasde crop report to its forecasts for US grain exports in 2015-16, cutting by 50m its forecasts for soybean and wheat shipments to 1.675bn bushels and 850m bushels respectively.
However, the USDA, in its benchmark Wasde report, kept at 1.875bn bushels the forecast for corn exports, despite shipments of the grain, as for soybeans and wheat, also lagging market expectations so far this season.
Broker CHS Hedging noted that the USDA’s soybean export hopes “were lowered due to the slow pace of export commitments but the USDA did not do the same to corn exports which is a bit puzzling”.
“Many were expecting a reduction” to the corn export estimate.
For wheat, Terry Reilly at Futures International said that the USDA’s downgrade to its US export forecast was a “little aggressive in our opinion”.
However, it may prove justified if the US export performance in the grain “continues to run at a very slow pace”.
(Source – http://www.agrimoney.com/news/firmer-oil-weaker-dollar-helpful-for-grain-prices—morgan-stanley–8877.html)