MARKET DEVELOPMENT
Morning Markets: Palm Takes Limelight, Hitting One-Year High
Morning Markets: Palm Takes Limelight, Hitting One-Year High
22/11/2013 (AgriMoney.com) - There is action going on in agricultural commodity markets.
It just isn't happening in Chicago.
The last session saw cotton futures score, temporarily, large gains, arabica coffee hang on to hefty headway and cocoa score a two-year high in New York.
And the early deals on Thursday belonged to Kuala Lumpur palm oil, which soared 3.2% to 2,663 ringgit a tonne for the February contract, the highest for a benchmark contract for nigh on 14 months.
It had eased back to 2,651 ringgit a tonne as of 09:30 UK time (03:30 Chicago time), still up a healthy 2.8% on the day.
Chinese demand to rise
The increase in prices of the vegetable oil comes against a background of concerns about South East Asian production being weakened by heavy rains, which hamper palm fruit harvesting and raise water content.
Official Malaysian meteorologists warned on Friday that high rainfall this month may lower crop yields in the second-ranked palm producing, and exporting, country.
And there are hopes for exports too.
"Export demand is likely to improve and climb in the upcoming months as countries begin to increase in stockpiles as they exit from the winter season," Phillip Futures analyst Chee Tat said, noting that palm oil is often sidelined during cold weather thanks to its relatively high solidification point, compared with rivals such as soyoil.
"Moreover, we will expect China to expand her palm oil imports in the following months.
"The world's second-largest palm oil consumer is likely to restock ahead of Chinese New Year," which falls at the end of January.
Supply squeeze ahead?
But on top of that, a senior Malaysian Palm Oil Board official flagged a price supportive scenario ahead, with the country's exports of the vegetable oil to exceed output in 2014.
"There could be increases in exports of palm oil amid a moderate increase in production growth," Ramli Abdullah, the head of MPOB's economic unit, said.
He forecast output rising by only 100,000 tonnes to 19.5m tonnes next year, after a 600,000-tonne increase in 2013.
Shipments, meanwhile, are seen at 19.9m tonnes, up more than 800,000 tonnes year on year, after growth of some 1.5m tonnes in 2013.
And this when stocks are already seen declining, expected to finish this year at 1.87m tonnes, Mr Ramli said, forecasting palm oil prices trading between 2,350-2,800 ringgit a tonne in 2014.
Soyoil supported
Palm's performance helped prices of rival vegetable oil soyoil too, which gained 1.0% in Chicago for December delivery to reach 40.73 cents a pound.
There had in fact been hopes from commentators such as Jefferies Bache that a fall to a three-year 39.09 cents a pound in early October might prove a springboard to a sustained, cyclical price rise, but the broker acknowledged that "the question now is impact of potential revisions" in the US biofuels mandate.
"The lack of data on the quantity involved and the long range process for such a move seems to be slowing market reaction," Jefferies Bache senior oilseed analyst Anne Frick said.
Soyoil direction later may also depend on US weekly export sales data expected to come in at 0-150,000 tonnes, although it would appear that a 40,000-tonne sale to India announced on November 14 would make the cut, questioning ideas at the lower end of the range.
'Large crop being planted'
But the buoyancy did not spread to soybeans themselves, which were held back by a stagnant performance by the other major product, soymeal, which added only 0.1% to $407.50 a short ton in Chicago for December delivery.
Besides, the benign planting weather in Argentina and Brazil continues to concern soybean bulls, speaking of a strong South American crop to be harvested early in 2014.
"The large crop that is being planted in South America continues to pressure soybean markets," CHS Hedging said.
"Weather conditions have allowed planting progress to continue ahead of weekend rains."
China to cancel deliveries?
Weekly US export sales data later will be key to soybeans too, and are expected to come in at 650,000-850,000 tonnes.
That said, orders are one thing – actual exports are another, and CHS Hedging tapped into the concerns that China will cancel or roll forward US purchases assuming South American crops meet their potential.
"The concern over China possibly cancelling deliveries has traders worried about nearby exports and future demand," the broker said, adding that the US soybean basis has "appeared to weaken".
"The soybean pipeline seems to have enough supply at this time."
Soybeans for January added 0.4% to $12.78 ½ a bushel.
'Is there any reason to buy?'
Wheat posted similar gains, helped by a downbeat estimate late on Wednesday by the Rosario board of trade for the Argentine harvest, while Australia's crop also looks like disappointing optimists.
"Harvest in Australia has put more focus on global quality as early results indicate small berry size and low protein, while concerns about frost damage have also been levied," Brian Henry at Benson Quinn Commodities said.
This proved something of a catalyst for buying at a time when the market has been a little short of excuses.
"The wheat market is oversold - everyone knows that," Mike Mawdsley at broker Market 1 said.
"Is there any reason to buy or for funds to cover shorts now?"
'Demand not great right now'
In fact, seasonal factors are against wheat, with Mr Henry noting that "the wheat market typically fights a seasonal trend lower in early December, and the short position holder feels confident they won't get chased out prior to that period.
"They, of course, are leaning on the idea that global demand for wheat is not great right now and the US, while competitive into some destinations, is typically more expensive on tenders that will draw attention."
Still, wheat for December added 0.4% to $6.49 ½ a bushel in Chicago for December delivery.
'Trying to flatten out'
Corn kept up, adding 0.4% to $4.18 ¼ a bushel for December, amid ideas that the grain may be finding something of a floor around current levels, albeit within sight of Tuesday's three-year low of $4.10 ¾ a bushel and overarching ideas of huge world supplies.
"The technical structure in the corn market is trying to flatten out," Mr Henry said.
"However, it is going to be a struggle until the market can post a couple of higher closes in a row.
"It looks like the market is poised to correct oversold conditions in a sideways fashion as the speculator has very little interest in establishing length."
'Difficult to become optimistic'
Back among soft commodities, China, which provided some support to cotton in the last session on talk of a lower harvest and delayed stockpile sales, was little help in this one, with import data showing a 48% slump to 141,185 tonnes last month.
Cotton for March extended gains, but not far, adding 0.1% to 78.25 cents a pound.
At Commonwealth Bank of Australia, Luke Mathews, talking of China's massive inventories, noted that "given existing levels of Chinese production and use, and zero imports, it would take seven years to draw Chinese stocks back to a 100% stock-to-use ratio.
"In short, it is difficult to become optimistic about global cotton prices given the current Chinese inventory overhang."
Sugar imports soar
However, Chinese sugar imports soared 109% year on year in October to 709,873 tonnes, ahead of the average pace of increase of 8.5% so far in 2013.
That at least helped New York raw sugar futures for March hold at 17.60 cents a pound, after two negative sessions.
It just isn't happening in Chicago.
The last session saw cotton futures score, temporarily, large gains, arabica coffee hang on to hefty headway and cocoa score a two-year high in New York.
And the early deals on Thursday belonged to Kuala Lumpur palm oil, which soared 3.2% to 2,663 ringgit a tonne for the February contract, the highest for a benchmark contract for nigh on 14 months.
It had eased back to 2,651 ringgit a tonne as of 09:30 UK time (03:30 Chicago time), still up a healthy 2.8% on the day.
Chinese demand to rise
The increase in prices of the vegetable oil comes against a background of concerns about South East Asian production being weakened by heavy rains, which hamper palm fruit harvesting and raise water content.
Official Malaysian meteorologists warned on Friday that high rainfall this month may lower crop yields in the second-ranked palm producing, and exporting, country.
And there are hopes for exports too.
"Export demand is likely to improve and climb in the upcoming months as countries begin to increase in stockpiles as they exit from the winter season," Phillip Futures analyst Chee Tat said, noting that palm oil is often sidelined during cold weather thanks to its relatively high solidification point, compared with rivals such as soyoil.
"Moreover, we will expect China to expand her palm oil imports in the following months.
"The world's second-largest palm oil consumer is likely to restock ahead of Chinese New Year," which falls at the end of January.
Supply squeeze ahead?
But on top of that, a senior Malaysian Palm Oil Board official flagged a price supportive scenario ahead, with the country's exports of the vegetable oil to exceed output in 2014.
"There could be increases in exports of palm oil amid a moderate increase in production growth," Ramli Abdullah, the head of MPOB's economic unit, said.
He forecast output rising by only 100,000 tonnes to 19.5m tonnes next year, after a 600,000-tonne increase in 2013.
Shipments, meanwhile, are seen at 19.9m tonnes, up more than 800,000 tonnes year on year, after growth of some 1.5m tonnes in 2013.
And this when stocks are already seen declining, expected to finish this year at 1.87m tonnes, Mr Ramli said, forecasting palm oil prices trading between 2,350-2,800 ringgit a tonne in 2014.
Soyoil supported
Palm's performance helped prices of rival vegetable oil soyoil too, which gained 1.0% in Chicago for December delivery to reach 40.73 cents a pound.
There had in fact been hopes from commentators such as Jefferies Bache that a fall to a three-year 39.09 cents a pound in early October might prove a springboard to a sustained, cyclical price rise, but the broker acknowledged that "the question now is impact of potential revisions" in the US biofuels mandate.
"The lack of data on the quantity involved and the long range process for such a move seems to be slowing market reaction," Jefferies Bache senior oilseed analyst Anne Frick said.
Soyoil direction later may also depend on US weekly export sales data expected to come in at 0-150,000 tonnes, although it would appear that a 40,000-tonne sale to India announced on November 14 would make the cut, questioning ideas at the lower end of the range.
'Large crop being planted'
But the buoyancy did not spread to soybeans themselves, which were held back by a stagnant performance by the other major product, soymeal, which added only 0.1% to $407.50 a short ton in Chicago for December delivery.
Besides, the benign planting weather in Argentina and Brazil continues to concern soybean bulls, speaking of a strong South American crop to be harvested early in 2014.
"The large crop that is being planted in South America continues to pressure soybean markets," CHS Hedging said.
"Weather conditions have allowed planting progress to continue ahead of weekend rains."
China to cancel deliveries?
Weekly US export sales data later will be key to soybeans too, and are expected to come in at 650,000-850,000 tonnes.
That said, orders are one thing – actual exports are another, and CHS Hedging tapped into the concerns that China will cancel or roll forward US purchases assuming South American crops meet their potential.
"The concern over China possibly cancelling deliveries has traders worried about nearby exports and future demand," the broker said, adding that the US soybean basis has "appeared to weaken".
"The soybean pipeline seems to have enough supply at this time."
Soybeans for January added 0.4% to $12.78 ½ a bushel.
'Is there any reason to buy?'
Wheat posted similar gains, helped by a downbeat estimate late on Wednesday by the Rosario board of trade for the Argentine harvest, while Australia's crop also looks like disappointing optimists.
"Harvest in Australia has put more focus on global quality as early results indicate small berry size and low protein, while concerns about frost damage have also been levied," Brian Henry at Benson Quinn Commodities said.
This proved something of a catalyst for buying at a time when the market has been a little short of excuses.
"The wheat market is oversold - everyone knows that," Mike Mawdsley at broker Market 1 said.
"Is there any reason to buy or for funds to cover shorts now?"
'Demand not great right now'
In fact, seasonal factors are against wheat, with Mr Henry noting that "the wheat market typically fights a seasonal trend lower in early December, and the short position holder feels confident they won't get chased out prior to that period.
"They, of course, are leaning on the idea that global demand for wheat is not great right now and the US, while competitive into some destinations, is typically more expensive on tenders that will draw attention."
Still, wheat for December added 0.4% to $6.49 ½ a bushel in Chicago for December delivery.
'Trying to flatten out'
Corn kept up, adding 0.4% to $4.18 ¼ a bushel for December, amid ideas that the grain may be finding something of a floor around current levels, albeit within sight of Tuesday's three-year low of $4.10 ¾ a bushel and overarching ideas of huge world supplies.
"The technical structure in the corn market is trying to flatten out," Mr Henry said.
"However, it is going to be a struggle until the market can post a couple of higher closes in a row.
"It looks like the market is poised to correct oversold conditions in a sideways fashion as the speculator has very little interest in establishing length."
'Difficult to become optimistic'
Back among soft commodities, China, which provided some support to cotton in the last session on talk of a lower harvest and delayed stockpile sales, was little help in this one, with import data showing a 48% slump to 141,185 tonnes last month.
Cotton for March extended gains, but not far, adding 0.1% to 78.25 cents a pound.
At Commonwealth Bank of Australia, Luke Mathews, talking of China's massive inventories, noted that "given existing levels of Chinese production and use, and zero imports, it would take seven years to draw Chinese stocks back to a 100% stock-to-use ratio.
"In short, it is difficult to become optimistic about global cotton prices given the current Chinese inventory overhang."
Sugar imports soar
However, Chinese sugar imports soared 109% year on year in October to 709,873 tonnes, ahead of the average pace of increase of 8.5% so far in 2013.
That at least helped New York raw sugar futures for March hold at 17.60 cents a pound, after two negative sessions.