With the change of months has come something of a change of fortunes in ags. While one of the biggest losers of March, hard winter wheat, soared on Tuesday, last month’s best-performer, cocoa, tanked as talk of much-needed rains in West Africa spurred funds to take gains which Societe Generale cautioned was “extreme overbought” and “extremely vulnerable to profit-taking”.
Data late on Friday showed hedge funds holding a net long position of 42,609 contracts in New York cocoa futures and options, a 19-month high. And exchange data showing open interest at an 11-month high of more than 304,000 lots added to the idea of an overheavy long position.
‘Beneficial rains’
Jack Scoville at Price Futures flagged “reports of beneficial rains in most countries in the [West Africa] region. “Showers and more seasonal temperatures have been seen in the last week to improve overall production conditions.” And selling accelerated, leaving the New York May contract to close down 5.2% at $2,498 per tonne, its biggest drop in 10 months, as a series of chart support points failed to hold. The London May cocoa contract ended earlier down a more modest 1.1% at £1,733 a tonne.
‘Firmly negative’
Raw sugar futures also eased in New York, by 0.4% to 12.47 cents a pound, weighed by yet another upgrade to expectations for the world sugar production surplus in 2017-18, this time by Rabobank, which forecast a further surplus in 2018-19 too.
The bank pegged Indian output this season at a huge 31.7m tonnes, the kind of figure previously reserved for Brazil. “The market’s momentum remains firmly negative,” said Tobin Gorey at Commonwealth Bank of Australia, who has focused on the unusually large discount of the October 2018 contract and the March 2019 one – encouraging sellers to avoid adding to the current market excess.
Sucden Financial said that sugar markets “continue in bearish mode, beset by further upward revisions in estimates for the surplus this year and next. “We see the bottom of the range being tested and 12 cents a pound thereafter. “Below that will depend on the appetite of end users also happy to price requirements on a hand-to-mouth basis.”
Wheat soars
Still, the Bcom ag subindex added 0.8% nonetheless, to return above its 50-day moving average – helped largely by a storming performance by wheat futures, which soared 2.2% to $4.57 ½ a bushel in Chicago, for the May soft red winter wheat contract. The gain returned the contract back above its 100-day moving average.Kansas City hard red winter wheat for May jumped 3.7% to $4.84 ¾ a bushel, back above its 200-day moving average, with its outperformance a clue as to the fuel behind the price gains – fresh worries about the dryness in the US southern Plains, the key hard red winter wheat-growing region.
If much of March was about removing risk premium from US wheat prices, Tuesday was about putting some of it back in.
‘A bit surprising’
As Mike Zuzolo at Global Commodity Analytics noted, the first full US Department of Agriculture winter wheat rating of the calendar year put it at “32% good or excellent, versus 51% last year.“There were even bigger declines for Texas, Oklahoma and Kansas, with no end in sight on 10-day weather models” to the dryness which is spurring the crop deterioration. “Weaker-than-expected condition ratings on the first crop progress report of the year helped to propel winter wheat,” said Tregg Cronin at Halo Commodity Company.
“The poor of rating in Oklahoma was a bit surprising considering their decent rainfall in the eastern portion of the state the last few weeks.” The overall good or excellent rating of 32% was the lowest since 2002.
Spring wheat vs soybeans: Minneapolis spring wheat gained ground too, adding 1.7% to $5.83 a bushel for May, it’s first gain in six sessions, pulled up by the winter wheat lots, but also by ideas that at current prices sowings might fall short of the strong levels indicated by US Department of Agriculture data on Friday, with soybeans picking up area instead.
The spread between the November soybean futures contract, and the September Minneapolis spring wheat one, “hit +$4.60 a bushel yesterday, versus +$4.11 ¼ a bushel the morning before the report,” Mr Cronin said. “This would seem to imply a huge incentive to plant soybeans for northern Plains farmers,” ie those in the key spring wheat-growing region.
“It is not unprecedented for spring wheat acres to steal share away from beans at these sort of premium levels, but incredibly rare to say the least.”In Paris, wheat futures for May added 1.5% to E166.25 a tonne, the third-highest close for a spot contract in six months, helped by US prices, but also by the return to market of Algeria, a big importer from France.
‘Demand appears good’
As for soybeans themselves, the May Chicago contract added 0.2% to $10.38 a bushel, staying narrowly ahead of its 40-day moving average, offered some support by Friday’s USDA data showing US farmers intend to sow far less of the oilseed than had been thought.
(That said, the 2% recovery in prices since may help entice a few more acres, maybe from the likes of spring wheat.) The US crush data overnight for February, which came in at 164.9m bushels, up 13.5m bushels year on year, and 1.6m bushels ahead of a Bloomberg forecast, also helped. “Demand appears good for corn and soybeans, while wheat continues to struggle to find a story other than dry conditions across the belt,” Benson Quinn Commodities said. Still, soybeans remain under something of a cloud with the worries of them getting caught in Chinese retribution for US tariffs on imports of Chinese aluminium and steel.
Hogs hit
Gains in corn futures too were muted, with the Chicago May contract adding 0.2% to $3.88 ½ a bushel, against a backdrop of some threats to that demand, after China raised tariffs on imports of US pork and ethanol, two sectors with large corn demand. Chicago lean hog futures for June, the best trade contract, stood down 2.7% at 71.65 cents a pound in afternoon deals, earlier setting a contract low of 70.90 cents a pound. The April lot stood down 5.0% at 51.675 cents a pound, earlier touching 51.35 cents a pound, the weakest for a spot contract in nigh on 16 months.
Furthermore, ideas that early US corn sowings were running slowly were undermined by USDA crop progress data. “Most were looking for delays based on moisture received the last 2-3 weeks, but this was not the case,” Halo’s Tregg Cronin said. “Of the states reporting, Alabama was 17% planted versus 14% average, Georgia was 40% planted versus 38% average, Louisiana was 84% planted versus 69% average, Mississippi was 50% planted versus 34% average and Texas was 55% planted versus 42% average. “
‘Planting will struggle’
Still, weather threats remain as the spring seeding window opens further, with Radiant Solutions noting that “corn planting will struggle to push much farther north, with very cold weather expected across the Midwest over the next week. “With temperatures expected to average 10-20 degrees Fahrenheit (6-11 Celsius) below normal over the next week, soil temperatures should remain in the 30s and 40s, far too cold to allow germination of corn. “Wet weather in the eastern Midwest over the next week will keep topsoil wetter than normal, which should also prevent corn planting from making much progress over the next week or so.” Agrimony
