MARKET DEVELOPMENT
Morning Markets: China, Oil Extend Ags\' Pre-Holiday Rally
Morning Markets: China, Oil Extend Ags\' Pre-Holiday Rally
04/07/2013 (Agrimoney.com) - One of the surprises of recent weeks for commodity watchers has been the strength of crude oil.
The prospect of tighter monetary policy in the US, and fresh concerns over the Chinese economy, has sent industrial metals lower, as well as gold (more the former, on reduced fears of currency debasement).
Prospects for huge US harvests of corn and soybeans, and large Brazilian sugar and coffee harvests, have undermined agricultural commodity futures.
But Brent crude has strengthened from an April low beneath $97 a barrel to more than $105 a barrel in early deals, spurred by ideas of demand from new refineries in China and Saudi Arabia, the prospect of tighter US sanctions on Iranian oil exports, and the unrest in Egypt.
With the Suez Canal a key route for oil tankers heading to the West, Egyptian disruption poses a threat to crude supplies.
And this has a big impact on prices of many agricultural commodities too, given that many are used in making biofuels.
Palm Reading
In Kuala Lumpur, palm oil, used largely in making biodiesel, remains above early-May lows - despite a late-June sell-off blamed in part on improving hopes for US soybean output, and thereby supplies of rival vegetable oil soyoil - in part thanks to firm crude prices.
Pre-Ramadan demand has played a part too, although hopes for Malaysian exports have taken a bit of a dent with the recent depreciation in the dollar, in which palm oil is largely traded on physical markets, with the falling rupee a particular consideration given that India is the top palm oil importer.
"Palm oil prices continue to face downward pressure brought about by the weakening rupee," Say Hwa, head of investment at Phillip Futures, said, noting a decline in Malaysia's shipments to India by 9.7%, month on month, in June to 147,830 tonnes.
"The depreciation of the rupee was a result of lower demand for emerging market assets from the US counterparts. Indian importers have thus slowed purchases."
Still, crude palm oil for September added 0.7% to 2,355 ringgit a tonne in Kuala Lumpur as of 09:45 UK time (03:45 Chicago time).
'Favourable Weather Conditions'
Among soft commodities, raw sugar has gained some support from the relative cheapness of ethanol compared with gasoline, improving demand and the case for Brazil's mills to turn into biofuel rather than sweeteners.
The link here is somewhat strained by Brazilian government controls on the energy market, and by the influence on sugar prices of other factors, such as the weather in the key Centre South district.
Phillip Futures also flagged the "favourable weather conditions in top grower Brazil", where dryness should "boost harvesting" of cane, so lifting sugar supplies and pressing prices.
And in India, the best start to the monsoon in 12 years "bodes for Indian agricultural production, including sugar, which should continue to weigh on values", Luke Mathews at Commonwealth Bank of Australia said.
Still, New York's October raw sugar contract was unchanged at 16.53 cents a pound.
'Profitable Ethanol Margins'
In Chicago, old crop corn is proving a beneficiary of stronger crude oil, though the use of a hefty chunk of the US harvest in making ethanol.
Indeed, ethanol plant demand was seen as a big factor in stabilising the US basis after Monday's dent which sent old crop July futures plunging.
"Crude oil's surge on Egyptian unrest should be noted within context of profitable nearby ethanol plant margins," Richard Feltes at RJ O'Brien said.
"The crude oil rally has caught the attention of corn bulls who know that further corn basis gains in the short term, amid strong nearly ethanol margins, are supportive to corn spreads as well."
September vs December
More will be known on US ethanol later, with the release of weekly production and stocks data. Last week's data, showing output at 885,000 barrels a day, was the highest in a year.
Not that some caution is not due in interpreting ethanol influences.
The US summer driving season peaks in five weeks or so, while the "outright dearth of late summer corn supplies in some areas may force temporary closure of select ethanol plants despite positive margins", Mr Feltes said, advising the sale of Chicago's September corn contract, spread against a purchase of the December lot.
The ramp up in use of wheat, fresh from the combine, instead of corn in feed rations may also undermine the September lot, he added.
For now, July corn added 0.7% to $6.77 ½ a bushel, while the September contract was up 0.8% at $5.37 ½ a bushel, and the December lot 0.9% higher at $5.07 ¼ a bushel.
Also due later are crop estimates from Informa Economics, opening the run-down to next week's US Department of Agriculture benchmark Wasde crop report.
Holidays Ahead
The rise in the December lot comes against a continuing benign weather outlook too, although there are some areas towards the west, nearer US heatwave territory that are looking a little dry.
"For the most part, weather patterns look favourable as most areas are expecting normal to slightly below temperatures," Brian Henry at Benson Quinn Commodities said.
"There are a few areas that wouldn't turn down a rain between now and the weekend."
But short-covering, encouraged by the prospect of the US Independence Day holiday, is also playing a big role in ensuring agricultural commodity laggards.
Besides closing markets on Thursday, the celebrations mean an early close in Chicago today, and likely light trading volumes on Friday too, limiting opportunities to trade – and all against the threat to the bears who are sitting on profits of a turn nastier in the US weather outlook.
"The trade will watch for to see if the hot conditions in the west show signs of sliding east," Mr Henry said.
Chinese Purchase
In wheat, the urge to cover shorts received another boost with news of a further Chinese purchase, of 300,000 tonnes of Australian wheat to follows its 200,000 tonnes bought from France last week which temporarily underpinned prices.
Chinese demand is being spurred by a state stockpiling programme at a time when much of the domestic harvest is seen to have suffered, on quality at least, from harvest rains.
And this following Egypt's return to international markets too, with a 180,000-tonne purchase on Tuesday.
Wheat for September added 1.3% to $6.66 ½ a bushel in Chicago, and 1.2% to $6.99 ¼ a bushel in Kansas City.
Deliveries against the expiring July contracts in Kansas (821 receipts) and Minneapolis (600), which helped undermine prices in the last session, will also be monitored.
"There are likely some good stoppers in Minneapolis, but I expect the bulk of Kansas City receipts to come back out," Mr Henry said.
Dalian Rise
China provided a lift to the soy complex too, with soymeal futures for January, the best-traded lot, adding 0.9% to 3,125 yuan a tonne on the Dalian exchange.
That helped soymeal for July added 0.8% to $491.00 a short ton in Chicago, not far off its contract high, while July soybeans gained 0.8% to $15.85 a bushel.
New crop soybeans for November added 1.0% to $12.45 ¼ a bushel.
The prospect of tighter monetary policy in the US, and fresh concerns over the Chinese economy, has sent industrial metals lower, as well as gold (more the former, on reduced fears of currency debasement).
Prospects for huge US harvests of corn and soybeans, and large Brazilian sugar and coffee harvests, have undermined agricultural commodity futures.
But Brent crude has strengthened from an April low beneath $97 a barrel to more than $105 a barrel in early deals, spurred by ideas of demand from new refineries in China and Saudi Arabia, the prospect of tighter US sanctions on Iranian oil exports, and the unrest in Egypt.
With the Suez Canal a key route for oil tankers heading to the West, Egyptian disruption poses a threat to crude supplies.
And this has a big impact on prices of many agricultural commodities too, given that many are used in making biofuels.
Palm Reading
In Kuala Lumpur, palm oil, used largely in making biodiesel, remains above early-May lows - despite a late-June sell-off blamed in part on improving hopes for US soybean output, and thereby supplies of rival vegetable oil soyoil - in part thanks to firm crude prices.
Pre-Ramadan demand has played a part too, although hopes for Malaysian exports have taken a bit of a dent with the recent depreciation in the dollar, in which palm oil is largely traded on physical markets, with the falling rupee a particular consideration given that India is the top palm oil importer.
"Palm oil prices continue to face downward pressure brought about by the weakening rupee," Say Hwa, head of investment at Phillip Futures, said, noting a decline in Malaysia's shipments to India by 9.7%, month on month, in June to 147,830 tonnes.
"The depreciation of the rupee was a result of lower demand for emerging market assets from the US counterparts. Indian importers have thus slowed purchases."
Still, crude palm oil for September added 0.7% to 2,355 ringgit a tonne in Kuala Lumpur as of 09:45 UK time (03:45 Chicago time).
'Favourable Weather Conditions'
Among soft commodities, raw sugar has gained some support from the relative cheapness of ethanol compared with gasoline, improving demand and the case for Brazil's mills to turn into biofuel rather than sweeteners.
The link here is somewhat strained by Brazilian government controls on the energy market, and by the influence on sugar prices of other factors, such as the weather in the key Centre South district.
Phillip Futures also flagged the "favourable weather conditions in top grower Brazil", where dryness should "boost harvesting" of cane, so lifting sugar supplies and pressing prices.
And in India, the best start to the monsoon in 12 years "bodes for Indian agricultural production, including sugar, which should continue to weigh on values", Luke Mathews at Commonwealth Bank of Australia said.
Still, New York's October raw sugar contract was unchanged at 16.53 cents a pound.
'Profitable Ethanol Margins'
In Chicago, old crop corn is proving a beneficiary of stronger crude oil, though the use of a hefty chunk of the US harvest in making ethanol.
Indeed, ethanol plant demand was seen as a big factor in stabilising the US basis after Monday's dent which sent old crop July futures plunging.
"Crude oil's surge on Egyptian unrest should be noted within context of profitable nearby ethanol plant margins," Richard Feltes at RJ O'Brien said.
"The crude oil rally has caught the attention of corn bulls who know that further corn basis gains in the short term, amid strong nearly ethanol margins, are supportive to corn spreads as well."
September vs December
More will be known on US ethanol later, with the release of weekly production and stocks data. Last week's data, showing output at 885,000 barrels a day, was the highest in a year.
Not that some caution is not due in interpreting ethanol influences.
The US summer driving season peaks in five weeks or so, while the "outright dearth of late summer corn supplies in some areas may force temporary closure of select ethanol plants despite positive margins", Mr Feltes said, advising the sale of Chicago's September corn contract, spread against a purchase of the December lot.
The ramp up in use of wheat, fresh from the combine, instead of corn in feed rations may also undermine the September lot, he added.
For now, July corn added 0.7% to $6.77 ½ a bushel, while the September contract was up 0.8% at $5.37 ½ a bushel, and the December lot 0.9% higher at $5.07 ¼ a bushel.
Also due later are crop estimates from Informa Economics, opening the run-down to next week's US Department of Agriculture benchmark Wasde crop report.
Holidays Ahead
The rise in the December lot comes against a continuing benign weather outlook too, although there are some areas towards the west, nearer US heatwave territory that are looking a little dry.
"For the most part, weather patterns look favourable as most areas are expecting normal to slightly below temperatures," Brian Henry at Benson Quinn Commodities said.
"There are a few areas that wouldn't turn down a rain between now and the weekend."
But short-covering, encouraged by the prospect of the US Independence Day holiday, is also playing a big role in ensuring agricultural commodity laggards.
Besides closing markets on Thursday, the celebrations mean an early close in Chicago today, and likely light trading volumes on Friday too, limiting opportunities to trade – and all against the threat to the bears who are sitting on profits of a turn nastier in the US weather outlook.
"The trade will watch for to see if the hot conditions in the west show signs of sliding east," Mr Henry said.
Chinese Purchase
In wheat, the urge to cover shorts received another boost with news of a further Chinese purchase, of 300,000 tonnes of Australian wheat to follows its 200,000 tonnes bought from France last week which temporarily underpinned prices.
Chinese demand is being spurred by a state stockpiling programme at a time when much of the domestic harvest is seen to have suffered, on quality at least, from harvest rains.
And this following Egypt's return to international markets too, with a 180,000-tonne purchase on Tuesday.
Wheat for September added 1.3% to $6.66 ½ a bushel in Chicago, and 1.2% to $6.99 ¼ a bushel in Kansas City.
Deliveries against the expiring July contracts in Kansas (821 receipts) and Minneapolis (600), which helped undermine prices in the last session, will also be monitored.
"There are likely some good stoppers in Minneapolis, but I expect the bulk of Kansas City receipts to come back out," Mr Henry said.
Dalian Rise
China provided a lift to the soy complex too, with soymeal futures for January, the best-traded lot, adding 0.9% to 3,125 yuan a tonne on the Dalian exchange.
That helped soymeal for July added 0.8% to $491.00 a short ton in Chicago, not far off its contract high, while July soybeans gained 0.8% to $15.85 a bushel.
New crop soybeans for November added 1.0% to $12.45 ¼ a bushel.