Eyes in agricultural commodity markets are looking further east than Washington.
OK, last week’s election of Donald Trump as US president is a talking point, particularly over its impact on boosting the dollar (which actually retreated 0.3% in early deals, after hitting the highest in nearly a year in the last session).
The gains have come in particular at the expense of some emerging market currencies, such as the Brazilian real, which has tumbled more than 6% against the greenback, so boosting domestic prices of dollar-denominated agricultural commodities, and encouraging a rash of selling by the country’s farmers.
In soybeans, for instance, “the plunge in the Brazilian real is providing some good selling opportunities for Brazilian farmers,” said Tobin Gorey at Commonwealth Bank of Australia.
“Advance sales of the 2016 season crop, now about two-thirds planted, have reportedly risen to about 45% – a big jump on last week.”
‘Crack down on speculation’
However, what is going on in China, and efforts made by officials to clamp down on commodity speculation, remain a big talking point.
The measures, which include cost increases for investors on China’s commodity exchanges, appear to be centred on industrial metals and energy.
But ags are certainly feeling the fallout too, a factor worrying investors worldwide, given that China is the top importer of many, such as rubber and soybeans.
“The Chinese government has been increasing trading fees and margin requirements in effort to reduce speculative positions in its broad commodity markets,” Benson Quinn Commodities said.
And is there more action to come?
“There are still market rumours China plans to crack down on market speculation,” said Terry Reilly at Chicago broker Futures International.
Certainly, there were more losses on Tuesday in Chinese ag futures, with palm oil for January, for instance, settling down 2.4% at 5,974 yuan a tonne, now down 5.2% in two sessions.
Dalian soyoil for January shed a more modest 0.8% to 6,574 yuan a tonne, but is still down nearly 4% for the week so far, while January soybeans themselves tumbled 3.2% to 3,711 yuan a tonne, taking losses for the two sessions to 5.6%.
“While there is a case to be made that Dalian futures were too high, there is also an appetite to limit excessive speculation, which has added volatility,” said Benson Quinn Commodities.
In Shanghai, rubber for January slowed its decline to 1.1% for the day, taking the contract to 15,605 yuan a tonne, by Zhengzhou cotton could not repeat its bizarre trick on Monday of a sharply lower close, but a marginally higher settlement price.
The January contract shed 3.1% to 15,415 yuan a tonne.
The declines gave bears a head start in other markets too, with palm oil for January, for instance, extending its decline in Kuala Lumpur, falling 0.9% to 2,826 ringgit a tonne as of 10:30 UK time (04:30 Chicago time).
Indeed, the contract fell further back from the four-year high of 3,089 ringgit a tonne set on Friday.
Rival soyoil continued to fare a little better, reopening its premium, in easing 0.2% to 34.10 cents a pound in Chicago for January delivery, amid continued curbed ideas of US soybean crushing in 2016-17, meaning less domestic output of the vegetable oil (as well as soymeal).
“This month’s dimmer outlook for soybean meal exports and domestic use are seen curtailing the 2016-17 soybean crush by 20m bushels to 1.93bn,” the US Department of Agriculture said in a report overnight, which talked of “higher prices this year” of soyoil.
Soybeans themselves for January, now the spot contract, eased by 0.2% to $9.82 ½ a bushel in Chicago, but stayed just above their 40-day and 50-day moving averages, given some help by continued signs of demand for US exports.
US soybean exports last week, as measured by cargo inspections, totalled 2.79m tonnes, mainly destined for top importer China.
Futures International’s Terry Reilly said: “Roughly 34% of USDA’s 2.05bn-bushel export projection [for the whole of 2016-17] has been shipped,” with the season less than 20% through.
“Demand continues to offer underlying support” to prices, Benson Quinn Commodities said, if adding that dollar strength, “uncertainties of Chinese government intervention in speculation in its markets as well as uncertainty of US trade pacts under new presidential administration pressure beans and the ag complex”.
‘Plenty of room to add shorts’
Corn at least held its ground in Chicago, standing unchanged at $3.37 ¼ a bushel for December delivery, but still trading at around its lowest prices in a month.
USDA crop progress data overnight were of little help, in showing the US harvest 93% complete, 1 point ahead of last year.
Nor were regulatory data showing that hedge funds in the week to last Tuesday cut their net short in Chicago corn futures and options by nearly 37,000 contracts to 28,054 lots – creating fresh scope for selling.
“The funds have plenty of room to add shorts, if the technical structure remains weak,” said Benson Quinn Commodities.
More helpful to US prices are setbacks in rival exporter the Ukraine, where Agritel reported that, last week, shippers “did not even manage to load 300,000 tonnes of corn against 550,000 tonnes in the previous week.
“This setback is a further evidence of current logistical difficulties of the country,” the consultancy said, adding that “recent bad weather conditions should not facilitate” exports either.
“Corn demand is still high, especially from Europe, Turkey and Tunisia.”
Wheat fared better in Chicago, adding 0.6% to $3.96 ¼ a bushel for December delivery, helped somewhat by regulatory data showing hedge funds had made a small increase to their net short in the contract, to 111,346 lots, trimming likely scope for sales.
Furthermore, dryness remains a concern for US winter wheat crops, even though USDA data overnight showed a small increase, of 1 point to 59% in the proportion rated “good” or “excellent”.
CBA’s Tobin Gorey flagged a dry outlook for the US Plains, hard red winter wheat country, saying that “weather forecasters continue to expect dry parts of that regions to remain that way for yet another week.
“Forecasters also continue to expect temperatures to decline about a week ahead so any moisture may be moot because the crop will not be able use it anyway.
“Crops will be poorly established and, as temperatures descend, vulnerable to cold.”
‘More serious than previously expected’
Terry Reilly said that the “US southern Great Plains will remain dry while snow is in the forecast later this week for the northern Great Plains”.
And he flagged some worries further east in US soft red winter wheat, where “net drying is also expected.
“In fact, the dry situation across the Delta might be more serious than previously expected,” he said.
“We are hearing plots set aside for hay harvest for the fall will not be collected this year in Tennessee.
“Nashville news station mentioned selected areas may see water restrictions. Since this area includes a good amount of soft red winter wheat, traders should monitor the situation.”
In New York, cotton was also on the rise, adding 0.7% to 65.79 cents a pound for March delivery, creeping above its 40-day and 50-day moving averages, and looking for a second successive day of gains.
The contract was helped by USDA data overnight showing that 61% of the crop had been harvested – up just 5 points week on week, and well behind the average of 68% completion by now.
“The slower than normal pace may add a touch of support to the market today,” Mr Gorey said.
As an extra support, the ICAC nudged higher by 1 point, to 74 cents a pound, its forecast for the average cotton price, as measured by the Cotlook A index, in 2016-17.
This following a trim of 40,000 tonnes, to 4.88m tonnes, on Monday in China’s National Cotton Information Centre forecast for the domestic crop, taking its decline year on year to 6.5%.
Still, not all comment was upbeat, with traders at Ecom saying that “cotton futures continue to lack any real direction despite last weeks’ volume being the highest weekly volume recorded in cotton’s history.
“Despite closing on gains yesterday’s session had a lower high and lower low, suggesting momentum remains to the downside.”
(Source – http://www.agrimoney.com/marketreport/am-markets-china-clampdown-fears-keep-cloud-over-ag-markets–3847.html)