Western markets finally got some good news from China on Tuesday, where bankers turned on the liquidity taps at last.
Soybeans rallied on easing China fears, but attention on wheat and corn markets appears to have turned back to bearish US crop prospects, while arabica found new 1-1/2 year lows.
Liquidity boost
It was another grim day on the Chinese equity markets, with the Shanghai Composite Index falling another 7.6% to its lowest point since December last year, but the losses seem to have finally prodded the Chinese central bank in to action.
Chinese interest rates were shaved by 0.25%, and perhaps more significantly, capital reserve requirements for banks were cut by 0.5%.
The Chinese government will be hoping this new found liquidity will boost markets, and western stock markets seemed to agree, as the FTSE 100 and the FTSE Eurofirst rose 3.1% and 4.2% respectively, while the Dow Jones in New York followed the upward trend on opening.
Turnaround Tuesday
In many ways the picture was a reverse of Monday, when the falling equity markets dragged the dollar down with them, lending some unexpected strength to agricultural commodities.
On Tuesday the dollar rose by over 1% against a basket of currencies, not enough to push it back through the 200-day moving average, but the first time it has risen since the middle of last week.
Soybeans, which are particularly dependent on Chinese import demand, rallied from 6-1/2 year lows on the news of the rate cut.
Soybeans also had some support from a drier than normal forecast in the US Midwest, but pressure from the rising dollar and the prospect of a big US harvest trimmed early gains.
November soybeans finished up 0.3% at $8.77 ¾ a bushel.
Conditions steady
The US Department of Agriculture’s weekly crop report, released after the close of markets on Monday, showed soybean conditions stabilised.
And analyst Michael Cordonnier lifted his forecast for US soybean production by 2 bushels an acre to 46 bushels an acre after a tour of Midwest growing regions, reporting the conditions “better than expected.”
But he noted that soybeans are not “out of the woods” and that the current dry mid-west outlook could “keep the later developing soybeans from reaching their potential”.
Markets look to fundamentals
Wheat and corn meanwhile showed little response to the encouraging macroeconomic news.
“As we pointed out yesterday, the commodity sector started trading their own fundamentals shortly after the initial selloff yesterday morning,” said Darell Holaday of Country Futures.
“That reality became more evident today as the equity rally has really not sparked significant commodity interest,”
Thick supplies
The US spring wheat harvest is now 75% complete versus an average of just 47% at this point in the year, while soil moisture content for the winter wheat areas boded well for early crop development once the crop is planted.
And global supplies also promised to be thick. “Australia had helpful rains over the weekend to keep crop development on track,” said CHS Hedging.
Algeria’s wheat harvest reached 4m tonnes, this season, the head of the country’s grain agency said, compared to 3.4m tonnes last year.
And Kazakhstan’s grain exports rose to 651,400 tonnes this marketing year, ahead of 633,100 last year.
Chicago December wheat prices fell 1.4% to $4.99 ½ a bushel.
‘Worse than expected”
Corn markets also fell, pressured a stable crop rating in the USDA report, where some analyst surveys had shown a decline.
Overseas supplies also threatened to be ample, as consultant UkrAgroConsult reported improved corn conditions thanks to recent rain.
But Dr Cordonnier reported that he had seen Midwest corn “a little worse than expected”.
“A lot of the corn is maturing prematurely due to dry conditions, a lack of nitrogen, and disease pressures,” he said, although he left his yield forecast unchanged at 165 bushels an acre.
Fresh lows for coffee
There was one familiar story on Tuesday, as the Brazilian real sunk once again against the dollar.
The fall, along with continued Brazilian harvest pressure, pushedarabica to a new 6-1/2 year low.
December arabica finished down 0.9%, at 120.55 cents a pound, while November robusta closed down 0.7%, at $1,615 a tonne.
But sugar rallied from Monday’s low, as fresh rains in Brazil threatened to disrupt the progress of the sugar harvest.
New York October raw sugar settled up 2.0%, at 10.60 cents a pound, up from Monday’s seven-year low of 10.13 cents.
