Wags are saying that the “Trump trade” – which saw many markets buoyed by hopes that the new US president’s policies would spur economic growth – has morphed into a “Trump fade”.
Instead, President Trump’s actions are “now raising some fears on financial markets”, Paris-based Agritel said, attributing the fallout from orders including US immigration curbs for knock-on effects even on French bond prices.
“Medium- and long-term rates on the French government bonds are rising. The 10-year maturity [bond yield] is now at 1.05%, 60 basis points over the German bond on the same period.”
Benson Quinn Commodities said that “global risk-off on US political rhetoric is bearish” for ag markets too.
Certainly, equity market buoyancy proved harder to come by on Tuesday, with Asian markets following New York lower, including a 1.7% drop in Tokyo shares, while the safe haven of gold posted further headway.
However, markets’ risk-off feel was not as strong as 24 hours ago, with European shares posting at least marginal gains, and many agricultural commodities also in positive territory.
That said, it was not obvious that the progress in grains was that convincing either, and potentially down to calendar factors.
Benson Quinn put in the “for what it’s worth” category the fact that it is a Tuesday, by repute a day when Chicago prices tend to reverse a strong session on the first day of the week (which would imply a reversal upwards on this occasion).
Also, it is the last trading day of the month, a time when funds by repute withdraw cash and tidy up positions – a process which, given that recent price falls have handed profitability to short bets – could mean short-closing, and upward pressure on futures.
US crop ratings
In fact, some of the grain market news out overnight could be construed as bearish, with official US crop assessments in major winter wheat growing states showing no further deterioration this month, after the drought and cold damage which marked late 2016.
The proportion of the winter wheat crop in Kansas, the top US (hard red winter) wheat-producing state, rated “good” or “excellent” held steady month-on-month at 44%, while remaining below the year-ago figure of 55%.
But in second-ranked Oklahoma, the figure improved by 12 points month on month to 33%, and in South Dakota by 6 points to 62%, with data for North Dakota and Nebraska holding more or less steady.
One potential disappointment was the figure for Texas which, at 29%, was down 12 points on the previous reading (in late November) and 20 points lower year on year.
In soft red winter wheat country, the Illinois crop was pegged at 74%, a rise of 5 points month on month.
In fact, concerns over cold damage to winter wheat are being most discussed with reference to the former Soviet Union, which is in the grips of a freeze.
“The peak of this cold spell is expected for today, and temperatures could fall down to -25 degrees Celsius from east Ukraine to the Ural mountains,” said Agritel.
“The plains of Russian central and Volga districts will record similar temperatures.”
Still, “the thickness of snow layer should be sufficient to prevent crops from further damage, especially with the fact that temperatures will not stay low for more than two or three days,” the consultancy added.
Certainly, gains in Chicago wheat futures in early deals were muted, with the March contract adding 0.1% to $4.14 ½ a bushel as of 10:00 UK time (04:00 Chicago time), failing in a brief attempt to rise back above its 40-day and 50-day moving averages 1 cent or so higher.
Corn vs soybeans
Corn futures were faring better at staying above some of its key moving averages, with the March contract adding 0.3% to $3.58 ¾ a bushel, staying 1-2 cents or so above its 40-day and 50-day lines.
One factor gaining increasing attention is the potential for a big drop in US sowings of the grain this year, unless markets offer a bigger financial incentive, by for instance closing corn’s discount to soybeans.
The ratio of November soybean futures to the December corn contract has been 2.60 or more of late – well into territory encouraging growers to champion the oilseed over the grain in spring sowings plans.
Little wonder that US growers are expected to sow a record 88.65m acres of soybeans this year, a jump of more than 5m acres year on year, while cutting corn plantings by 3.5m acres to 90.49m acres, according to Informa Economics.
But even if such a switch is warranted, does the financial incentive required to encourage farmers to champion soybeans need to be quite so strong?
Another pressure, that of costs, is also working in soybeans’ favour, given that corn, as a fertilizer-hungry crop, is more expensive to grow.
At broker Futures International, Terry Reilly flagged research by University of Nebraska-Lincoln showing that “77% of Nebraska producers are concerned that they may not be able to secure day-to-day operating capital in 2017 from banks, for expenses like seeds, fertilizers and utilities.
“Many US farmers faced four consecutive years of declining net producer income, and resorted in using cash reserves to pay for general family living expenses.
“The reduction in cash looks negative for producers obtaining loans from loan officers,” Mr Reilly said, if adding that Futures International itself was working with a figure for US corn sowings this year of 92.0m acres, well above the Informa forecast.
Whatever, November soybean futures struggled to maintain such a hefty premium, with their advantage over December corn falling below 2.60 at one point.
Indeed, soybean futures were broadly a touch less buoyant than corn, with the March lot adding 0.2% to $10.24 ½a bushel, recovering only a portion of the 2.5% lost in the last session, on waning concerns over South American production after a dry weekend in Argentina, where flooding has destroyed some crops.
In fact, while fresh rains are in the outlook, a “week of drier conditions has the Argentine crop stabilising, with potential now seen in the 52m-53m-tonne range versus earlier cries of 48m-50m tonnes”, Benson Quinn Commodities said.
Respected crop analyst Michael Cordonnier overnight raised by 1.0m tonnes to 52.0m tonnes his forecast for Argentina’s soybean harvest.
Palm output up, prices down
Soybeans’ gains were in line with those of soymeal, which for March gained 0.1% to $334.80 a short ton – after a 2.5% tumble in the last session.
Soyoil, the other main soybean processing product, fared better, adding 0.4% to 33.75 cents a pound, after a 1.9% tumble in the last session, with its – relative – resilience a reflection of the fact that the vegetable oil has gained far less price support from Argentina’s flooding woes than soymeal.
(This despite the fact that Argentina is the top exporter of both soy processing products.)
Rival vegetable oil palm oil fared worse on Tuesday, falling 1.2% to 3,034 ringgit a tonne in Kuala Lumpur for April delivery, catching up with the last session’s losses in soyoil.
Furthermore, bullish sentiment was hardly encouraged by a forecast from Indonesian palm oil association Gapki that the country, the top producer of the vegetable oil, would export 27m tonnes of it this year, a rise of 1.9m tonnes year on year.
The increase would come on the back of a 4.0m-tonne jump to 35.5m tones in palm oil output.
‘Prices may find support’
In New York, cotton fared better, adding 0.4% to 74.45 cents a pound for March, doing better than grains at recovering losses in the last session, which for the fibre amounted to 0.9%.
Tobin Gorey at Commonwealth Bank of Australia said: “We are not surprised that investors took the opportunity to book some profits once prices pushed through the 75 cents-a-pound level.
“The market though continues to suggest tightness in 2016 season contracts. Prices may find some support today as a result.”
(Source – http://www.agrimoney.com/marketreport/am-markets-browbeaten-ags-regroup-defying-trump-fade–3950.html)