Red dials were seen across the screens today as prices for most agricultural commodities slumped. The stronger US dollar was a significant contributor to the falls, as traders looked to book profits on many commodities that, until today, had posted strong gains.
The US dollar index extended its recent rally again, having surged 3.5% since recent lows were posted at the start of the month. A stronger US dollar will reduce the competiveness of US dollar-denominated commodities in international markets.
Certainly at the moment the currency’s strength is providing a considerable headwind for US commodity prices.
Chicago contracts crunched
Prices for wheat, corn and soybeans all closed sharply lower today. The weaker macro backdrop (lower equity prices, lower oil and stronger US dollar) provided some strong impetus for traders and investors to hit the sell button, however there was also a general feeling across the market that “the reality is that all of these markets had been overbought no matter what angle” you came from, as Darrell Holaday from Country Futures noted.
Indeed, the USDA-reported weekly export figures were not a bearish as you’d imagine – if you judged by the bearish price action. Old crop corn sales were quoted at 1.4m tonnes and new crop sales at 0.54m tonnes. To make a combined figure near 2m tonnes for the week.
Likewise, weekly wheat sales came in at good levels, with 0.75m tonnes reported for old and new crop. Soybean export sales were in line with estimates at 0.714m tonnes.
The market’s bearish response telling us these figures were well priced in by the recent move higher.
At close of markets the spot month Jul-16 soybean contract was down 5 ½ cents per bushel (0.5%) to 1070 cents. The Jul-16 wheat contract slumped 11 ¾ cents per bushel (2.4%) to 468.25 cents. The Jul-16 corn also sold-off 9 ½ cents per bushel (2.4%) to 390 cents.
The bearish session across US agricultural markets sets up an interesting week ahead. This is particularly true for sugar and soybeans, which have both rallied hard on non-commercial traders lengthening their long, or bought, positions.
As the Commonwealth Bank of Australia’s Tobin Gorey notes “investors are heavily long sugar” and with the previous strong rally appearing to stall “a sustained period of directionless volatility will eventually extinguish the ‘buy’ light on momentum investor’s dashboards”, meaning we may see further weakness in the sessions ahead.
Coffee prices underperform
Coffee prices have traded sharply lower today, underperforming the broader commodities sector.
New York arabica prices slumped, the spot Jul-16 contract falling 4.7% to 123.95 cents per pound and London robusta futures followed suit, the spot Jul-16 gave up 1.6% to close at $1643 per tonne.
The complex was pressured lower by a stronger dollar – with the US Fed now places a greater probability of a rate hike in June if the US economy continues to show an improvement.
The stronger dollar caused many commodity currencies to weaken. In particular, the Brazilian Real depreciated by 1% to 3.62, which created a bearish backdrop for coffee prices. After both coffee types rallied strongly last week, traders were willing to take-profits today after a strong run.
Robusta prices have also been sensitive to drought fears in Vietnam, the world’s largest robusta producer. MDA Weather Services, this week, expects Vietnam coffee producing areas to see continued showers this week which should provide some relief towards cherry growth and ease production fears.
(Source – http://www.agrimoney.com/marketreport/pm-markets-strong-us-dollar-hits-agri-commodity-prices–3611.html)