MARKET DEVELOPMENT
Morning Markets: AG Futures Extend Gains on Fed Surprise
Morning Markets: AG Futures Extend Gains on Fed Surprise
20/09/2013 (Agrimoney.com) - A whiff of "risk on" trading has returned to markets.
The decorrelation of risk assets, which moved like a herd during the global economic crisis and its aftermath, has been one of defining factors of 2013.
In fact, agricultural commodity investors have complained that share price gains this year have been a negative for their markets, in encouraging funds to shift money from crops to equities.
However, the Federal Reserve's decision not to "taper" its asset purchases for now, and stick with the full monthly injection into the US bond market of $85bn a month, has allowed gains across the board, and in a range of geographies.
Markets have responded strongly to the dovish announcement", Barclays said.
"Equity and bond markets rallied, breakevens rose, gold prices increased and the US dollar sold off across the board."
Strong Markets
That said, some assets did gain more than others.
Shares managed some healthy gains, adding 1.8% in Tokyo and Hong Kong. And among commodities, industrials did especially well, with London copper gaining more than 2% on Thursday, on top of a 1.6% rise in the last session.
Among agricultural commodities, rubber, as one of the crops used for industrial rather than food use, surfed the wave strongly too, adding 2.7% to 285.30 yen a kilogramme in Tokyo for the benchmark February contract.
Talk that China has bought cargoes from Indonesia and Thailand, and could be looking for more for a stockpiling programme, also boosted the tyre ingredient.
Warning Shot
But it was not all a bull's paradise, with some investors doubting that any injection of hedge fund money into ag futures will last long, even though the Fed's move would appear to spell a double boost to commodities.
Not only does it spell faster economic growth, and therefore demand, it has also undermined the dollar, so making dollar-denominated exports cheaper to buyers in other currencies.
Still, "speculative capital in ag market will continue to wane until or unless the next market threat to global food supplies emerges," Richard Feltes at RJ O'Brien said,
And cotton, another industrial crop, certainly lost some of its mojo, having gained more than 1% in the last session, and added just a further 0.1% to 85.61 cents a pound in New York as of 09:35 UK time (04:35 New York time, 03:35 Chicago time).
'Bearish sentiment'
In Kuala Lumpur, palm oil dropped 0.6% to 2,308 ringgit a tonne, pressed by ideas that a stronger ringgit against the dollar would dent an uptick in Malaysian exports.
In the first half of this month, Malaysia's palm shipments soared 13.6%, according to Intertek, with rival cargo surveyor SGS putting the rise at 12.4%.
Furthermore, ideas of seasonally strong output in Indonesia and Malaysia, the top two producers and exporters, continued to grip traders too.
"Bearish sentiment is brought about by forecasted strong production in palm oil as palm oil enters high production cycle in the second half of the year," Say Hwa, head of investment at Philip Futures, said.
"Strong production would cause stockpiles to increase when demand is unable to offset supplies, hence weighing on palm oil prices."
Soy Gains
Palm's decline weighed on prices of rival vegetable oil soyoil too, which gained in Chicago, but by a modest 0.4% to 42.89 cents a pound for December delivery.
That was well behind futures in soymeal, the other main soybean processing product, which added 0.9% to $429.80 a short ton for December, while soybeans themselves were up 0.7% to $13.57 ¼ a bushel for the benchmark November lot.
Besides the boost to prices from the Fed's move, soybeans have also received a boost from more than 2m tonnes of US export sales announced on Wednesday, mostly to China, and a decision by Indonesia to scrap temporarily its 5% soybean import tariff on the oilseed, besides of course by South American weather.
Dryness in Argentina and Brazil has been raising some small concerns, in hampering soybean sowings, a factor which could have implications for sowings of follow-on safrinha corn too if a delayed soy harvest cuts into the planting window for that crop early in 2014.
'Widespread Midwest Rains'
Not that everything is all going bulls' way.
Joyce Liu at Phillip Futures noted "forecasted rains in the US Midwest which could benefit soybeans that were maturing later.
"It remains to be seen if the possible improvement in late-maturing crops could significantly improve soybean yields which had been adversely affected by recent hot and dry weather conditions."
And weather service MDA, for instance, said that "widespread Midwest rains through Saturday should continue to improve moisture, it will be too late to benefit soybeans and corn".
Still, early harvest reports for soybeans have been not so bad, if less promising than for corn.
"Bean harvest has been inching along with rains slowing progress, but so far early yield reports have not been the disaster expected in Iowa and Illinois," Benson Quinn Commodities said.
Soybeans vs corn
Corn for December kept up, gaining 0.8% to $4.60 a bushel, again a rise mainly attributed to the Fed's move, although analysts did manage to find some reasons for fundamental support.
Ms Liu noted that the Midwest rains were likely to "cause corn harvest to slow down", adding delays to a process already running well behind the average pace, thanks to the delayed spring sowing season.
Mr Feltes clocked widespread market talk that "soybeans will move more readily than corn at harvest", with growers unwilling to sell the grain at low prices, a factor "which suggests further slippage" in the ratio between November soybean and December corn futures.
For now, anyway. "Longer term, we think soybean:corn ratio will rebound amid the pressing need to increase 2014 US soybean area, and the ongoing growth in Chinese soybean import demand," Mr Feltes said.
'Continue to Wreak Havoc'
Still, it was actually wheat which fare best among the Chicago majors, adding 1.2% to $6.54 ¼ a bushel for December, edging ever closer to returning its premium over corn to $2 a bushel.
Sure, the market has a record world harvest in 2013-14 to digest.
However, some more positive factors "are starting to show some influence", Brian Henry at Benson Quinn Commodities said.
Technically, "upward seasonal momentum has been slow to start, but it hasn't completely failed either."
And on fundamentals, there are continued concerns over the rain-beset Russia harvest, on quality grounds at least, on top of frost damage to Brazil's crop, and the lack of rain in Argentina.
"Dry conditions continue to wreak havoc on Argentine wheat production," Mr Henry said.
'Has Some Value'
While Australia's grain belt has received much-needed rainfall, "may have come too late for some crops in the far north western New South Wales wheat belt", Luke Mathews at Commonwealth Bank of Australia said.
Mr Henry added: "Wheat prices will suffer if corn and soybeans need to work lower.
"But there are enough factors that indicate wheat has some value near the current price levels to keep this market from selling off sharply."
That said, Minneapolis spring wheat underperformed, adding 0.8% to $7.06 a bushel, weighed by continuing strong reports from the Canadian spring wheat harvest, with the farm ministry upgrading its crop estimate overnight.
Sugar Sweetens
Wheat was just about keeping up with raw sugar, which added 1.2% to 17.09 cents a pound in New York for October delivery, also boosted by South American weather – although this time rain, which has hit the Brazil Centre South cane belt, so slowing harvesting and reducing output of the sweetener.
In the last 24 hours "for the first time in quite a while we saw significant rains push up into much of east central Brazil", WxRisk.com said.
"These rains came further north and the models were forecasting over the past few days.
"Rains of 12-50mm covered the northern half of Parana, 65% of Sao Paulo, into the southern third of Goias and south west Minas Gerais," the weather service said.
It added that "the rest of Brazil was dry", including the important soybean and corn growing state Mato Grosso.
Data Later
Grain and oilseed markets also face the gauntlet of US weekly export sales data later, expected at 450,000-800,000 tonnes for soybeans, compared with 478,100 tonnes last week.
For wheat, export sales are forecast at 400,000-800,000 tonnes, compared with 544,000 tonnes last time.
For corn, a figure of 350,000-650,000 tonnes is expected, up from 333,000 tonnes.
Also, an early warning that Informa Economics is expected on Friday to unveil estimates for small grains, ahead of the US Department of Agriculture's stocks report on September 30, and initial forecasts for US sowings in 2014 too.
The decorrelation of risk assets, which moved like a herd during the global economic crisis and its aftermath, has been one of defining factors of 2013.
In fact, agricultural commodity investors have complained that share price gains this year have been a negative for their markets, in encouraging funds to shift money from crops to equities.
However, the Federal Reserve's decision not to "taper" its asset purchases for now, and stick with the full monthly injection into the US bond market of $85bn a month, has allowed gains across the board, and in a range of geographies.
Markets have responded strongly to the dovish announcement", Barclays said.
"Equity and bond markets rallied, breakevens rose, gold prices increased and the US dollar sold off across the board."
Strong Markets
That said, some assets did gain more than others.
Shares managed some healthy gains, adding 1.8% in Tokyo and Hong Kong. And among commodities, industrials did especially well, with London copper gaining more than 2% on Thursday, on top of a 1.6% rise in the last session.
Among agricultural commodities, rubber, as one of the crops used for industrial rather than food use, surfed the wave strongly too, adding 2.7% to 285.30 yen a kilogramme in Tokyo for the benchmark February contract.
Talk that China has bought cargoes from Indonesia and Thailand, and could be looking for more for a stockpiling programme, also boosted the tyre ingredient.
Warning Shot
But it was not all a bull's paradise, with some investors doubting that any injection of hedge fund money into ag futures will last long, even though the Fed's move would appear to spell a double boost to commodities.
Not only does it spell faster economic growth, and therefore demand, it has also undermined the dollar, so making dollar-denominated exports cheaper to buyers in other currencies.
Still, "speculative capital in ag market will continue to wane until or unless the next market threat to global food supplies emerges," Richard Feltes at RJ O'Brien said,
And cotton, another industrial crop, certainly lost some of its mojo, having gained more than 1% in the last session, and added just a further 0.1% to 85.61 cents a pound in New York as of 09:35 UK time (04:35 New York time, 03:35 Chicago time).
'Bearish sentiment'
In Kuala Lumpur, palm oil dropped 0.6% to 2,308 ringgit a tonne, pressed by ideas that a stronger ringgit against the dollar would dent an uptick in Malaysian exports.
In the first half of this month, Malaysia's palm shipments soared 13.6%, according to Intertek, with rival cargo surveyor SGS putting the rise at 12.4%.
Furthermore, ideas of seasonally strong output in Indonesia and Malaysia, the top two producers and exporters, continued to grip traders too.
"Bearish sentiment is brought about by forecasted strong production in palm oil as palm oil enters high production cycle in the second half of the year," Say Hwa, head of investment at Philip Futures, said.
"Strong production would cause stockpiles to increase when demand is unable to offset supplies, hence weighing on palm oil prices."
Soy Gains
Palm's decline weighed on prices of rival vegetable oil soyoil too, which gained in Chicago, but by a modest 0.4% to 42.89 cents a pound for December delivery.
That was well behind futures in soymeal, the other main soybean processing product, which added 0.9% to $429.80 a short ton for December, while soybeans themselves were up 0.7% to $13.57 ¼ a bushel for the benchmark November lot.
Besides the boost to prices from the Fed's move, soybeans have also received a boost from more than 2m tonnes of US export sales announced on Wednesday, mostly to China, and a decision by Indonesia to scrap temporarily its 5% soybean import tariff on the oilseed, besides of course by South American weather.
Dryness in Argentina and Brazil has been raising some small concerns, in hampering soybean sowings, a factor which could have implications for sowings of follow-on safrinha corn too if a delayed soy harvest cuts into the planting window for that crop early in 2014.
'Widespread Midwest Rains'
Not that everything is all going bulls' way.
Joyce Liu at Phillip Futures noted "forecasted rains in the US Midwest which could benefit soybeans that were maturing later.
"It remains to be seen if the possible improvement in late-maturing crops could significantly improve soybean yields which had been adversely affected by recent hot and dry weather conditions."
And weather service MDA, for instance, said that "widespread Midwest rains through Saturday should continue to improve moisture, it will be too late to benefit soybeans and corn".
Still, early harvest reports for soybeans have been not so bad, if less promising than for corn.
"Bean harvest has been inching along with rains slowing progress, but so far early yield reports have not been the disaster expected in Iowa and Illinois," Benson Quinn Commodities said.
Soybeans vs corn
Corn for December kept up, gaining 0.8% to $4.60 a bushel, again a rise mainly attributed to the Fed's move, although analysts did manage to find some reasons for fundamental support.
Ms Liu noted that the Midwest rains were likely to "cause corn harvest to slow down", adding delays to a process already running well behind the average pace, thanks to the delayed spring sowing season.
Mr Feltes clocked widespread market talk that "soybeans will move more readily than corn at harvest", with growers unwilling to sell the grain at low prices, a factor "which suggests further slippage" in the ratio between November soybean and December corn futures.
For now, anyway. "Longer term, we think soybean:corn ratio will rebound amid the pressing need to increase 2014 US soybean area, and the ongoing growth in Chinese soybean import demand," Mr Feltes said.
'Continue to Wreak Havoc'
Still, it was actually wheat which fare best among the Chicago majors, adding 1.2% to $6.54 ¼ a bushel for December, edging ever closer to returning its premium over corn to $2 a bushel.
Sure, the market has a record world harvest in 2013-14 to digest.
However, some more positive factors "are starting to show some influence", Brian Henry at Benson Quinn Commodities said.
Technically, "upward seasonal momentum has been slow to start, but it hasn't completely failed either."
And on fundamentals, there are continued concerns over the rain-beset Russia harvest, on quality grounds at least, on top of frost damage to Brazil's crop, and the lack of rain in Argentina.
"Dry conditions continue to wreak havoc on Argentine wheat production," Mr Henry said.
'Has Some Value'
While Australia's grain belt has received much-needed rainfall, "may have come too late for some crops in the far north western New South Wales wheat belt", Luke Mathews at Commonwealth Bank of Australia said.
Mr Henry added: "Wheat prices will suffer if corn and soybeans need to work lower.
"But there are enough factors that indicate wheat has some value near the current price levels to keep this market from selling off sharply."
That said, Minneapolis spring wheat underperformed, adding 0.8% to $7.06 a bushel, weighed by continuing strong reports from the Canadian spring wheat harvest, with the farm ministry upgrading its crop estimate overnight.
Sugar Sweetens
Wheat was just about keeping up with raw sugar, which added 1.2% to 17.09 cents a pound in New York for October delivery, also boosted by South American weather – although this time rain, which has hit the Brazil Centre South cane belt, so slowing harvesting and reducing output of the sweetener.
In the last 24 hours "for the first time in quite a while we saw significant rains push up into much of east central Brazil", WxRisk.com said.
"These rains came further north and the models were forecasting over the past few days.
"Rains of 12-50mm covered the northern half of Parana, 65% of Sao Paulo, into the southern third of Goias and south west Minas Gerais," the weather service said.
It added that "the rest of Brazil was dry", including the important soybean and corn growing state Mato Grosso.
Data Later
Grain and oilseed markets also face the gauntlet of US weekly export sales data later, expected at 450,000-800,000 tonnes for soybeans, compared with 478,100 tonnes last week.
For wheat, export sales are forecast at 400,000-800,000 tonnes, compared with 544,000 tonnes last time.
For corn, a figure of 350,000-650,000 tonnes is expected, up from 333,000 tonnes.
Also, an early warning that Informa Economics is expected on Friday to unveil estimates for small grains, ahead of the US Department of Agriculture's stocks report on September 30, and initial forecasts for US sowings in 2014 too.