Grains prices slumped back downward on Tuesday, on growing fears for the future of Chinese demand, as well as some better than expected US crop data, with declines of over 3% for corn and wheat, with soybeans not much stronger.
Tuesday was a bad day for the commodity complex as a whole, as China devalued the yuan.
“Of course the big news today is the Chinese devaluation of their currency and the bearish implications it has on the commodity sector,” said Darrell Holaday of Country Futures.
Richard Feltes of RJ O’Brien noted accelerating weakness in agricultural commodity markets as the “ramifications of yuan devaluation sink-in”.
Currency wars
China the world’s biggest consumer of raw materials startled markets with a record downward revision in its official guidance rate, of nearly 2%, in a move that is aimed at boosting Chinese exports.
However the move is bad news for commodity prices, as steeper exchange rates threaten Chinese demand for dollar-denominated good.
Copper tumbled 4% to a six-year low on the news, while crude oil fell back below $50 a barrel.
The move sent a number of other currencies in the region tumbling as well, including key agricultural exporters such as Australia and Malaysia.
Condition steady
There was also bearish news on US crop conditions.
Weekly crop data from the US Department of Agriculture, reported after markets closed on Monday, showed conditions as of August 9 better than expected, as dryness damage in the Midwest failed to materialise,
The USDA estimated corn crop conditions at 70% as good or excellent, unchanged from last week, down 3% from last year, compared to expectations of a 1% decline.
Markets are position ahead of Wednesday’s highly influential USDA world agricultural supply and demand estimates, which are expected to revise US grain hopes upward.
Heat stress danger remains
The USDA reported soybean conditions at 63% good or excellent, also unchanged from last week, down 7% from last year, compared to forecasts of a 1% downward revision.
However, forecaster Gail Martell reported that dryness risks may not have completely receded for US row crops.
“Heat and moisture stress is set to resume in the Midwest, following recent strong thunderstorms,” said Ms Martell.
“The updated forecast is much drier in the Midwest and also hotter for corn and soybeans,” she added.
September soybeans closed down 2.6% at $10.14 a bushel.
New crop November soybean futures closed down 2.3% at $9.71 ½ a bushel.
Brazil raises record safrinha hopes
Meanwhile, Brazil’s government crop supply agency Conab raised its forecast for this year’s corn harvest to 84.3m tonnes, up from 81.8m tonnes forecast last month.
Conab lifted its forecast for the safrinha, the second-season corn crop that accounts for most exports, past even last month’s record forecast, to 54m tonnes.
The agency saw exports of 26.4m tonnes from this year’s crop.
September corn futures closed down 3.3% in late trades at $3.76 ¼ a bushel.
Ukraine harvest nears completion
Wheat suffered from a weak grain market, as well as signs of a rapid harvest in Ukraine.
Ukraine’s agriculture ministry reported the country’s wheat harvest was 98% complete at 26.2m tonnes, compared to 23.3m tonnes at the same time last year.
However, yields lagged at 3.92 tonnes per hectare, compared with 33.8m tonnes last year.
Algerian demand
There was also some bullish demand data from Algeria, where grain buying is being supported by a poor local harvest and thin stocks.
Grain imports by Algeria reached 6.93m tonnes in the first six months of 2015, up 18% from a year earlier, official data showed.
The world’s third largest wheat importer saw soft wheat imports up 5.8% to 2.741m tonnes, while durum wheat imports were down 6.8% to 1.04m tonnes.
September Chicago wheat closed 3.5% down at $5.07 ¼ a bushel.
Softs buck trend
Softs bucked a bearish ag market trend, as arabica coffee surged to a 2-month high, and raw sugar bounced back from a 7-year low.
Coffee was lifted by technical buying, as well as uncertainty over the size of the Brazilian harvest.
The IBGE, the Brazilian government’s official statistics institute, raised its forecast for the Brazilian coffee crop some 800,000 bags higher to 44.2m bags, while BMI Research revised down its Brazilian coffee production forecast for 2015-16 to 46.3m bags.
Brazilian dryness
Debates are opening up about Brazilian coffee output, and the effect of dry weather on crops.
Last week Procafe said the harvest would end up 20-30% below their March forecast of about 41m-42m bags, already one of the lowest estimates in the market.
Jack Scoville of Price Futures said “the dry weather promotes good harvest progress but hurts flowering and it is the potential for damage to next year’s crop that supported prices”.
September arabica coffee in New York closed up 2.8%, at 137.20 cents a pound, while September robusta coffee in London closed up 1.9%, at $1,725 a tonne.
Sugar bounces
Meanwhile October raw sugar futures in New York settled up 0.5 %, at 10.62 cents a pound, after matching the Monday’s seven-year low.
Markets fell on Monday after data from Brazilian cane body Unica showed the rapid pace of the Centre South harvest.
However, Tobin Gorey of Commonwealth Bank of Australia noted before markets opened on Tuesday that the date was not entirely bearish.
“The South Brazil mills were, given much drier conditions, always going to start making up for the around 12m tonnes of crushing they didn’t get to in the soggy first half of July,” said Mr Gorey.
“More interesting in our view is the low sugar recovery and, most of all, the low allocation to sugar (more went to ethanol)” he added.
“Both are supportive for prices rather than bearish.”
