Whatever Bloomberg Intelligence may say about positive prospects for ag prices, gains were difficult to come by on Tuesday.
Cocoa was a standout performer, jumping 2.2% to $2,082 a tonne in New York, for December delivery, a two-month closing high.
The gain also secured further the contract’s foothold above its 200-day moving average, which it ended above on Friday for the first time.
Indeed, chart factors were viewed as supportive, with Sucden saying earlier that “technically, the outlook still favours the upside with the indicators suggesting higher prices.
“Momentum remains on the upside.”
‘Sharp short-covering rally’
At broker Price Futures, Jack Scoville said that “the charts once again suggest that a bigger rally could be coming in the short-term.
“Futures are now at the higher end” of their trading range, making the market vulnerable to “a sharp short-covering rally” if gains persist.
Sure, Mr Scoville added that “world production ideas remain high. Harvest reports show good to very good production will be seen this year in West Africa”.
However, demand ideas have improved too, with Harold Poelma, president of Cargill’s cocoa and chocolate division, foreseeing world cocoa demand growth of 2-3% in 2017-18, with Asian demand seen up 3-4%.
Wheat prices gain
In Chicago, it was wheat that gains bulls’ applause, rising by 0.8% to $4.48 a bushel in Chicago, for soft red winter wheat futures for December.
A flush of demand is helping support prices, with Egypt buying 180,000 tonnes and Iraq also in the market, besides a regular Japanese inquiry – although it has to be said that the Egyptian tender underlined that Russia is still the origin to beat on price, despite recent appreciation.
Also helpful to prices was the slow pace of US sowings revealed in US Department of Agriculture data overnight – a slowdown which looks likely to persist this week, thanks to forecast rains, although these will help germination prospects too.
And as an extra prop, spring wheat futures stabilised after their tumble following USDA data on Friday showing the latest US harvest far bigger than investors had thought, if still a weak one, thanks to drought damage.
‘Still historically tight’
Minneapolis spring wheat futures for December nudged 0.1% higher to $6.12 ¼ a bushel – a small rise, but one viewed as significant in suggesting the latest move down in prices (which filled in a chart gap dating from June) may have run its course.
“The spring wheat market is still historically tight and shouldn’t relinquish much more premium,” said Tregg Cronin at Halo Commodity Company.
Sure, the USDA estimate for US 2017-18-end stocks of hard red spring wheat “will likely move up to around 167m bushels from 146m bushels previously”.
But that would still “be the smallest since 2012-13”, if not the tightest in a decade as previously expected.
Fellow grain corn, however, could not manage any headway – in any part of the session – and closed down 0.6% at $3.49 ½ a bushel in Chicago for December delivery.
That surrendered the psychologically-important $3.50-a-bushel mark, and took the lot back within $0.05 of its contract closing low, set in late August.
“The path of least resistance is lower this time of year,” said Darrell Holaday at Country Futures, adding that with US harvest “in full swing, the market leaks lower” as supplies build.
And the harvest is still seen to be bringing better yields than had been expected, if a little below those last year, with Michael Cordonnier, the respected analyst, raising his US corn yield estimate by 2 bushels per acre to 168 bushels per acre.
INTL FCStone raised estimate by 2.3 bushels per acre to 169.2 bushels per acre, while Futures International lifted its forecast by 1.0 bushels per acre to 170.4 bushels per acre.
(The USDA is currently at 169.9 bushels per acre, but stands to revise that estimate next week in its monthly Wasde crop report.)
‘Running out of options’
Adding to the price pressure from strong supplies is the fact that there is a squeeze on where they can go, given the low water levels and lock problems which are snarling up barge traffic in the Mississippi River system.
“New inventories are backing up in the eastern interior US due to low river levels and lock issues offering additional resistance with cash basis markets near historic low levels,” Benson Quinn Commodities said.
ADM Investor Services said that “US farmers are running out of options for their just-harvested corn and soybeans as delays on the Mississippi River, the main conduit for crops to export markets, cause shipping backlogs, while grain storage on the river’s banks is filling up”.
The cost of hauling Midwest crops to Gulf Coast export terminals has risen “to near-record highs”.
Rocketing freight rates
Halo’s Tregg Cronin said that barge freight rates are in “Memphis-Cairo at 1100% of basic tariff, St Louis around 850%, and some chatter about prompt freight south of Memphis trading 1300%”.
“These are levels not seen since 2014 when demand for barges by frac sand and other industrial products pushed freight to record levels.”
Of course, this is an issue for soybeans too, with Mr Cronin saying that “with harvest bushels taxing the entire system, soy premiums are falling off in slabs in the eastern Corn Belt.
“With no competition from the river, crush plants are being overrun with soybeans.”
‘Lowest since at least 2011’
ADM investors services said that “elevators with barges on hand are prioritising loading soybeans while storing corn if they have space.
“Cash soybean premiums at several large river terminals in the St Louis area fell to the lowest point since at least 2011, while soy processors and inland elevators also dropped bids amid ample available supplies.”
However, soybean futures for November closed down a modest 0.1% nonetheless, at $9.55 ¼ a bushel, offered support by the idea of the return of China from holiday, and the prospect of fresh import orders.
Meanwhile strength was seen elsewhere in the oilseed complex too, including in soyoil, which for December added 0.7% to 32.75 cents a pound, helped by a firm close overnight by rival palm oil, and news that the US biofuels industry was fighting back against proposals by the EPA to cut the US biodiesel mandate.
(Source – http://www.agrimoney.com/marketreport/pm-markets-cocoa-wheat-futures-resist-ag-market-selldown–4288.html)