Has the retreat in equity prices over the last month been fuelling the rise in agricultural commodity values?
Certainly, there is talk of investors, scared by talk of higher interest rates, diverting cash from shares to raw materials, whose prices are seen as faring better in more inflationary times.
Terry Reilly at Chicago broker Futures International, for instance, noted that in the last session “equity markets were sharply lower”, as traders mulled comments by US Federal Reserve leaders “concerning interest rate hikes.
“The mass exit of money may have been pumped into commodities,” Mr Reilly said, noting that in ags “a mass inflow of new fund money lifted soybeans and soymeal higher” in particular.
At Global Commodity Analytics, Mike Zuzolo noted that “talk was heavy about investor flows into commodities”.
‘Market is short’
Still, if it was ostensibly good news then for ag bulls that Asian stockmarkets saw further softness overnight – with Shanghai shares down 1.7% in late deals, Seoul equities shedding 0.5%, and Tokyo stocks easing 0.1% despite forecast-beating Japanese economic growth data – it had in early deals yet to feed through into higher crop prices.
(London shares opened 0.6% lower too.)
OK, soymeal, on which many ag eyes are focused after its bravura performance of late, did touch a fresh 10-month high of $372.70 a short ton early on for July delivery, taking above $100 a short ton the contract’s rally since early April.
Prices have been boosted by worries over the availability of supplies from South America, and in particular Argentina, the top exporter, besides from Chinese state reserves.
“It seems the market/end user is short, anticipating cheaper beans and corn offers from China state auctions and cheaper soymeal offers from Argentina,” said Benson Quinn Commodities.
“Neither supplier, China nor Argentina, has materialised and commercial has to seek corn and meal elsewhere.”
‘Basis levels have collapsed’
But the temptation to take profits told on soymeal futures, which eased to $367.40 a short ton as of 08:50 UK time (02:50 Chicago time), a drop of 0.5% on the day.
It was little help that, on the US cash market, there was some talk of slowing demand for the feed ingredient, as reflected in a softer basis, and for soybeans too.
“As a matter of fact, the US Gulf and Brazilian port soybean basis levels have actually collapsed in the last week, certainly not a sign of strong export interest,” said Darrell Holaday at Country Futures.
This despite talk that European Union soymeal importers are in the market.
Futures in soybeans themselves fell by 1.0% to $10.69 ¼ a bushel for July delivery, wiping out most of their gains of the last session.
It was little help that the dollar was 0.4% higher against a basket of currencies, so undermining the affordability of dollar-denominated exports such as many commodities.
And that too may have encouraged selling in Chicago corn, which had gained ground of late in part on ideas that a weaker-than-expected Brazilian safrinha corn crop ( the primary source of the country’s export supplies) will drive extra demand from importers to the US.
As Benson Quinn Commodities said: “Dry conditions continue to plague northern areas of Brazil’s safrinha crop.
“This could increase the chance for more US corn exports throughout summer.”
And the weather outlook for Brazilian safrinha corn areas looks bleak, with Futures International’s Terry Reilly saying it “will continue to see crop stress”.
Still, Chicago corn futures for July eased 0.5% to $3.95 a bushel in early deals, shying away from what would be a first close above $4.00 a bushel in six months.
In fact, the contract touched $4.00 ½ a bushel earlier before finding fresh selling – matching the intraday high of the last session, and potentially indicating that the $4-a-bushel mark will be a tough nut to crack.
How the contract finishes may depend on the outcome of weekly US ethanol production data, expected later on Wednesday.
“We look for US ethanol production to increase 15,000-20,000 barrels per day from 980,000 barrels a week ago,” said Mr Reilly, foreseeing some pullback in US inventories of the biofuel too.
‘Some traders nervous’
The retreat in prices of the market leaders was little help either to thewheat market, which also retreated, despite the ongoing concerns over wetness for the US southern Plains crop.
Rain will return to south eastern Kansas, Oklahoma and Texas Wednesday night and Thursday,” Mr Reilly said, with talk of amounts of 3 inches or more in some areas.
“The precipitation across hard red winter wheat country this week is starting to get some traders nervous over quality issues.”
‘At risk of a hefty bounce’
The concerns were also noted by Tobin Gorey at Commonwealth Bank of Australia, who said that the timing of the rains was “bad and that might cause some quality issues to temper the high yields forecast for this crop”.
And this time at a time when hedge funds have a sizeable net short in Chicago soft red winter wheat futures and options, pegged at 78,181 lots as of last week, with a further net short of 10,598 lots in Kansas City hard red winter wheat.
“The market remains at risk of a hefty bounce at some point because investors still have a large short position,” Mr Gorey said.
“Investors will only remain short while they have some reason to think prices are going lower.”
Still, on the spring wheat front, Plains rains will be more favourable, given that almost all of the US crop is in the ground, meaning rainfall will benefit yields rather than slowing fieldwork.
“It looks like there is a rain event for portions of the northern plains next week, which would be good timing considering the bulk of the rest of the North American wheat crop will get planted this week,” said Benson Quinn Commodities.
Minneapolis spring wheat for July dropped by 0.7% to $5.35 ¼ a bushel, back below its 20-day moving average.
Chicago soft red winter wheat, the world benchmark, fell by 0.7% to $4.78 ¼ a bushel.
Indications were for lesser weakness in Paris wheat futures, amid some more upbeat talk on demand for EU supplies.
Global Commodity Analytics Mike Zuzolo flagged that that “foreign demand picking-up is drawing down [EU] supplies – finally.
“France in particular is reportedly backed-up with cargoes to load,” while farmers are said to be “holding-onto supplies here over in Europe as well, waiting for better prices”.
Paris-based Agritel, which this week revised up its EU wheats export forecast, said that “markets are finding some support in a busy physical and export activity, despite of the perspective of a large harvest on northern hemisphere”.
“European origins are still very competitive on the international stage.”
(Source – http://www.agrimoney.com/marketreport/am-markets-grain-futures-ease-despite-talk-of-cash-inflows–3608.html)