For Monday’s markets look no place for the heavy-lidded, after a weekend newflow abundant in price-moving events – from which ags emerged, relatively, unscathed.
For most investors, arguably the most important headline was the collapse of talks between oil producers which it had been hoped would hold output at January levels.
The talks foundered on Saudi Arabian demand that Iran, which has refused to curb oil output on grounds its exports have already suffered from years of sanctions, should be part of any agreement.
Brent crude stood 2.7% lower at $41.94 a barrel as of 10:00 UK time (04:00 Chicago time), while share markets also reacted negatively, opening 0.7% lower in London, after closing lower in Asia, after a somewhat “risk off” mood trumped the positive of lower oil prices for crude importing countries.
Shanghai stocks fell by 1.4%, while Tokyo’s Nikkei index tumbled 3.4%, hurt by another of the recent news events, the earthquakes centred on Kyushu.
For many ag investors, arguably a more significant event was Sunday’s vote by Brazil’s congress to impeach President Dilma Rousseff, meaning the process will now pass to the country’s senate.
Hopes that Ms Rousseff would be unseated have prompted a revival in the real, in turn supporting values of the host of ags in which Brazil is a major force, and which include coffee, sugar and soybeans.
Still, the early reaction of the real to the event was modest, with the Brazilian currency gaining just 0.1% against the dollar.
The dollar in turn was flat against a basket of currencies, despite the impact of the oil meeting’s collapse in hurting currencies of many major commodity exporting countries
“Monday trade though has brought abrupt falls among the hard commodity currencies,” said Tobin Gorey at Commonwealth Bank of Australia.
The Australian dollar shed 0.5% against the greenback, while the Canadian dollar dropped 0.9% – in turn boosting the value of local canola, making it more competitive on export markets.
Winnipeg-traded canola futures for May traded 0.7% higher at Can$480.10 a tonne, popping back over their 100-day moving average.
So how would Chicago ags, world benchmarks, react?
Prices of corn, a huge proportion of which goes in the US to make ethanol, did react negatively, feeling the pressure from declining oil prices – although not suffering a huge sell-off.
Chicago corn futures for May dropped 0.3% to $3.77 ½ a bushel.
Prices gained support from another Brazilian concern, a lack of rain for the safrinha crop, with MDA forecasting “continued drier weather in northern and central areas”.
“The market is concerned that conditions in Brazil remain too dry for second season corn,” CBA’s Tobin Gorey said.
Furthermore, there is talk of US corn proving competitive in world markets, helped by the fact that Brazil has been somewhat sidelined by the strong real and by overselling late last year, leaving domestic users short of supplies, and.
“US fob offers hold an advantage in the global market,” Benson Quinn Commodities said, flagging further support too from chart factors.
“The technical structure has a supportive tilt,” the broker said, if adding that “it is approaching overbought territory”.
Investors are also keeping a close eye on US plantings, and whether weather is proving favourable to getting crop in the ground.
Mr Gorey said that “aggressive US corn planting is expected in the Midwest this week as weather conditions remain favourable”.
However, MDA was less upbeat, saying that short-term, “showers in western and central [Midwest] crop areas will stall early corn planting”.
More Argentina rainfall
Soybeans fared better, touching $9.64 a bushel in early deals for May delivery, the highest for a spot contract since August, and indeed, for what it’s worth, coming $0.01 a bushel from filling a gap in the continuous chart dating from then.
The oilseed continued to get help from wet Argentine weather which is leaving forecasts of a 59m-60m-tonne soybean crop in doubt, and delaying harvest of what is escaping weather damage.
Indeed, the South American country looks set for further inundations in the eastern soybean belt, which has suffered worst from excessive precipitation.
This week, “heavy showers will push into northern and central Santa Fe, Entre Rios, and Chaco states,” said weather service MDA, after rains of up to 1.75 inches over the weekend.
“Heavy showers in northern Santa Fe and Entre Rios will slow harvesting and increase wetness threats,” MDA said, if adding that “drier weather is expected in the six-to-10 day period, easing threats”.
‘Now heavily long’
One concern for soybean investors is the extent of bullish bets on soybeans that hedge funds have already made, with data late on Friday showing managed money holding a net long of 100,000 contracts in Chicago soybean futures and options, the highest since June 2014.
“The aggressiveness by the funds to keep adding length is something to be very aware of,” said CHS Hedging, adding that soybean futures had, helped by speculative buying, been “able to stage a $0.50-a-bushel rally with some bearish fundamental news out there”.
But has the speculative position now grown so large as to become top heavy?
“The soybean market is now heavily long,” Mr Gorey said.
“So those Argentine weather and Brazilian political worries will need to be realised or else the funds might start to get cold feet.”
Soybeans for May eased back to stand at $9.60 ¼ a bushel, a gain of 0.4%.
‘Heavy rain showers’
By contrast, the extent of hedge fund selling in wheat was seen as having a positive impact on futures in the grain, with ideas that further appetite for short bets may be limited.
The US regulatory data late on Friday showed hedge funds hiking their net short in Chicago wheat futures and options by more than 38,000 contracts week on week to 106,000 lots – within 6,000 lots of the record.
They have been encouraged to sell by rainfall on the US Plains which has eased concerns over the dryness threat for winter wheat crops.
Over the weekend, “heavy rain showers”, of up to 4.6 inches, “were noted in Nebraska, Colorado, western Kansas, western and central Oklahoma, western and central Texas,” MDA said, adding that some snow was seen in Colorado too.
And with further rain due this week, “showers across the region are significantly improving moisture for wheat”.
Still, have funds overreacted?
“I believe the 38,000 contracts sold in Chicago [futures and options] is a record for one week,” said Benson Quinn Commodities.
“I doubt [funds] get away with that regardless of the weather.”
Certainly, Chicago wheat futures for May were 0.6% higher at $4.62 ½ a bushel, although Kansas City hard red winter wheat, as grown in the Plains, posted only a 0.1% gain for May delivery, to $4.58 a bushel.
Still, it was outrun by cotton, which in New York rebounded 3.3% to 62.02 cents a pound for July delivery, more than offsetting losses in the last session – its worst for a month – and indeed popping back over its 200-day moving average for the first time in three months.
This despite China’s announcement on Friday that it was to sell up to 2m tonnes of its huge cotton stockpile (besides the potential pressure from low oil prices, which undermine the values of synthetic fibres such as polyester).
“While Friday’s announcement itself was no surprise, the volume on offer was probably higher than what the market had expected,” Mr Gorey said.
“The ambitious target, coupled with claims of a more flexible pricing approach, would suggest that this time around China means business.”
However, “of course, it will only be after we see the pricing that we know how serious they really are”.
Certainly, investors in China were not factoring in a bargain price, with September futures on China’s Zhengzhou exchange recovering 1.2% to 11,460 renminbi per tonne, taking gains so far this month to 12.0%.
(Source – http://www.agrimoney.com/marketreport/am-markets-ags-ride-out-choppy-markets.-cotton-wheat-lead–3581.html)