MARKET DEVELOPMENT
AM Markets: Grains Ease, Awaiting Currency, Export Steers
AM Markets: Grains Ease, Awaiting Currency, Export Steers
17/02/2017 (AgriMoney.com) - Charts, currencies and demand signals appear to be captivating grain investors, in the absence of production surprises.
OK, there is still some debate about the Argentine soybean crop following flooding, and with more rain in the forecast.
"We suspect forecasts for heavy rain in southern and east central Argentina over the 10 days has injected some premium back into [soybean] prices," said Tobin Gorey at Commonwealth Bank of Australia.
The Brazilian soybean harvest, meanwhile, is merely expected to be large, and timely.
"Brazilian weather continues to improve to allow for faster harvesting," Mr Gorey said.
Plains worries ease
However, weather concerns over autumn-sown, northern hemisphere wheat crops appear to have returned to the back seat, with the latest worries – that early germination of US Plains crops might make them vulnerable to frost – undermined by the lack of a freeze in the weather outlook.
"We don't see any significant items, which isn't uncommon for this point in the year," said Minneapolis-based broker Benson Quinn Commodities.
"Concerns about winter wheat breaking dormancy would have more merit if cold temperatures were forecast going forward."
And the lack of production concerns, the typical fodder of bull markets in grains, is injecting some uncertainty over whether the gains in crop prices can be justified.
Currency factors
Still, thinking of wheat prices in particular, Benson Quinn added that "the path of least resistance continues to be higher".
Currencies are working more in favour of Chicago grain futures than might be expected, given that the dollar is back above 100 against a basket of currencies, making dollar-denominated exports that much less affordable.
Some currencies in important competitor countries, notably Brazil and Russia, are appreciating even faster.
That is not only reducing these nations' export competitiveness, so steering some demand elsewhere, such as to the US or Europe, but, in depressing local crop values, dissuading domestic growers from selling, and putting a squeeze on supplies for shipment too.
In soybeans, Benson Quinn Commodities said that in the last session the "biggest factor driving the fund buying, or at least allowing market to grind easily higher, was the lack of participation from South American producer" in selling terms.
This applied "in particular to the Brazilian farmer as the Brazilian real currency traded to 22-month high versus the dollar".
'Competitive boost'
For soybeans, domestic demand kicked off the year on a stronger-than-expected note too, data on Wednesday showed, with the NOPA industry group saying that its members crushed 160.62m bushels of the oilseed last month.
That is above the market expectation of 159.14m bushels, besides the 160.18m bushels crushed in December, and 150.45m bushels processed in January last year ago.
Still, with trading in the real yet to begin in earnest for Thursday, and the next data on demand on the horizon, in terms of US weekly export sales data due later, some investors decided to take profits on recent gains, sending March soybeans down 0.4% to $10.57 ¼ a bushel as of 10:00 UK time (04:00 Chicago time).
Performance later in the day may depend on the level of US export sales last week, which investors expect at 500,000-750,000 tonnes for soybeans, at least matching the figure of the week before.
With the real "trading at the highest level since last mid-2015, US soybeans are getting a competitive boost at a time when overseas buying interest is normally fading", CBA's Tobin Gorey said.
'Very supportive technical close'
With soybeans, the leader of the last session in Chicago, easing back, corn futures followed suit, dripping 0.3% to $3.77 ½ a bushel, awaiting US export sales data expected to come in at 900,000-1.1m tonnes for last week, up from 917,717 tonnes the week before.
Again, the grain had some domestic demand data on Wednesday too, in the form of ethanol production statistics for last week which came in at 1.040m barrels a day, down 15,000 barrels a day week on week, but high by historical standards nonetheless.
Whatever, from the technical perspective, "we suspect corn has developed enough of an upward trend to start accumulating some additional fund buying," CBA's Tobin Gorey said.
Benson Quinn Commodities flagged that the March corn contract "had a very supportive technical close… near the high of the day.
"Market direction remains intact to continue to test higher prices," depending on export data.
'Too many participants too bearish'
Wheat futures eased back too, although by a modest 0.1% to $4.54 ½ a bushel March basis, not enough to do much damage to technical credentials booted by breaking above the 200-day moving average again in the last session.
The contract remains in the battle to break above the downtrend line nearby which could signal an end to the bear market stretching back to 2008.
"While the cash market doesn't offer the type of inspiration needed to sustain this move, I subscribe to the idea that the market goes to the direction that causes the most pain," Benson Quinn Commodities said.
"The rally may be a simple case of too many participants being too bearish," with their net short remain extensive even now, and looking now like an underwater position for most investors – given that the contract is back above its average price of the past 200 days.
Paris rally
Trade later may depend on US export sales data for last week, which investors expect to come in at 300,000-500,000 tonnes, which would be a bit of a retreat from the 527,261 tonnes reported last time.
It may also depend on the rouble, which in making Russia's important wheat exports less competitive, has shifted demand elsewhere. (The rouble actually stood at 57.22 to $1, weakening 0.1% for the session, but still up nearly 7% so far this year.)
Wheat values in Europe, proximal to the former Soviet Union, have taken particular strength from the strong rouble – besides softness in the euro, and from chart factors too.
"Wheat prices on Euronext continue to progress after the breach of the technical resistance of E172 a tonne on the front contract, March," Agritel. said.
The rise has also "provoked a boost in the volume of transactions - yesterday 53,000 lots were exchanged on Euronext", helping the March contract nudge 0.3% higher to E173.50 a tonne – E0.5-a-tonne short of matching the highest finish for a spot contract in 13 months.
'Positive production trend'
One market doing less well is the palm oil market, where Kuala Lumpur's May contract pushed 1.0% lower to 2,937 ringgit a tonne.
That took the contract, on a continuous chart, below the 100-day moving average for the first time in five months.
Sentiment was hardly helped by plantations group Sipef reporting a "positive production trend" in palm oil, noting that the hangover "effects of the El Niño drought have finally receded".
Nor is Malaysian export demand much to write home about, rising 1.4% month on month for the first half of February, cargo surveyor ITS said.
OK, there is still some debate about the Argentine soybean crop following flooding, and with more rain in the forecast.
"We suspect forecasts for heavy rain in southern and east central Argentina over the 10 days has injected some premium back into [soybean] prices," said Tobin Gorey at Commonwealth Bank of Australia.
The Brazilian soybean harvest, meanwhile, is merely expected to be large, and timely.
"Brazilian weather continues to improve to allow for faster harvesting," Mr Gorey said.
Plains worries ease
However, weather concerns over autumn-sown, northern hemisphere wheat crops appear to have returned to the back seat, with the latest worries – that early germination of US Plains crops might make them vulnerable to frost – undermined by the lack of a freeze in the weather outlook.
"We don't see any significant items, which isn't uncommon for this point in the year," said Minneapolis-based broker Benson Quinn Commodities.
"Concerns about winter wheat breaking dormancy would have more merit if cold temperatures were forecast going forward."
And the lack of production concerns, the typical fodder of bull markets in grains, is injecting some uncertainty over whether the gains in crop prices can be justified.
Currency factors
Still, thinking of wheat prices in particular, Benson Quinn added that "the path of least resistance continues to be higher".
Currencies are working more in favour of Chicago grain futures than might be expected, given that the dollar is back above 100 against a basket of currencies, making dollar-denominated exports that much less affordable.
Some currencies in important competitor countries, notably Brazil and Russia, are appreciating even faster.
That is not only reducing these nations' export competitiveness, so steering some demand elsewhere, such as to the US or Europe, but, in depressing local crop values, dissuading domestic growers from selling, and putting a squeeze on supplies for shipment too.
In soybeans, Benson Quinn Commodities said that in the last session the "biggest factor driving the fund buying, or at least allowing market to grind easily higher, was the lack of participation from South American producer" in selling terms.
This applied "in particular to the Brazilian farmer as the Brazilian real currency traded to 22-month high versus the dollar".
'Competitive boost'
For soybeans, domestic demand kicked off the year on a stronger-than-expected note too, data on Wednesday showed, with the NOPA industry group saying that its members crushed 160.62m bushels of the oilseed last month.
That is above the market expectation of 159.14m bushels, besides the 160.18m bushels crushed in December, and 150.45m bushels processed in January last year ago.
Still, with trading in the real yet to begin in earnest for Thursday, and the next data on demand on the horizon, in terms of US weekly export sales data due later, some investors decided to take profits on recent gains, sending March soybeans down 0.4% to $10.57 ¼ a bushel as of 10:00 UK time (04:00 Chicago time).
Performance later in the day may depend on the level of US export sales last week, which investors expect at 500,000-750,000 tonnes for soybeans, at least matching the figure of the week before.
With the real "trading at the highest level since last mid-2015, US soybeans are getting a competitive boost at a time when overseas buying interest is normally fading", CBA's Tobin Gorey said.
'Very supportive technical close'
With soybeans, the leader of the last session in Chicago, easing back, corn futures followed suit, dripping 0.3% to $3.77 ½ a bushel, awaiting US export sales data expected to come in at 900,000-1.1m tonnes for last week, up from 917,717 tonnes the week before.
Again, the grain had some domestic demand data on Wednesday too, in the form of ethanol production statistics for last week which came in at 1.040m barrels a day, down 15,000 barrels a day week on week, but high by historical standards nonetheless.
Whatever, from the technical perspective, "we suspect corn has developed enough of an upward trend to start accumulating some additional fund buying," CBA's Tobin Gorey said.
Benson Quinn Commodities flagged that the March corn contract "had a very supportive technical close… near the high of the day.
"Market direction remains intact to continue to test higher prices," depending on export data.
'Too many participants too bearish'
Wheat futures eased back too, although by a modest 0.1% to $4.54 ½ a bushel March basis, not enough to do much damage to technical credentials booted by breaking above the 200-day moving average again in the last session.
The contract remains in the battle to break above the downtrend line nearby which could signal an end to the bear market stretching back to 2008.
"While the cash market doesn't offer the type of inspiration needed to sustain this move, I subscribe to the idea that the market goes to the direction that causes the most pain," Benson Quinn Commodities said.
"The rally may be a simple case of too many participants being too bearish," with their net short remain extensive even now, and looking now like an underwater position for most investors – given that the contract is back above its average price of the past 200 days.
Paris rally
Trade later may depend on US export sales data for last week, which investors expect to come in at 300,000-500,000 tonnes, which would be a bit of a retreat from the 527,261 tonnes reported last time.
It may also depend on the rouble, which in making Russia's important wheat exports less competitive, has shifted demand elsewhere. (The rouble actually stood at 57.22 to $1, weakening 0.1% for the session, but still up nearly 7% so far this year.)
Wheat values in Europe, proximal to the former Soviet Union, have taken particular strength from the strong rouble – besides softness in the euro, and from chart factors too.
"Wheat prices on Euronext continue to progress after the breach of the technical resistance of E172 a tonne on the front contract, March," Agritel. said.
The rise has also "provoked a boost in the volume of transactions - yesterday 53,000 lots were exchanged on Euronext", helping the March contract nudge 0.3% higher to E173.50 a tonne – E0.5-a-tonne short of matching the highest finish for a spot contract in 13 months.
'Positive production trend'
One market doing less well is the palm oil market, where Kuala Lumpur's May contract pushed 1.0% lower to 2,937 ringgit a tonne.
That took the contract, on a continuous chart, below the 100-day moving average for the first time in five months.
Sentiment was hardly helped by plantations group Sipef reporting a "positive production trend" in palm oil, noting that the hangover "effects of the El Niño drought have finally receded".
Nor is Malaysian export demand much to write home about, rising 1.4% month on month for the first half of February, cargo surveyor ITS said.