Who cares about slower world economic growth?
Or, to rephrase, the International Monetary Fund may on Tuesday have forecast that the world economy will grow this year at its slowest pace since the global financial crisis, thanks to an emerging market slowdown, but that did little to dissuade investors from buying commodities.
The CRB commodities index rose 1.9% to close (just) above 200 for only the second time in two months, helped by a jump back above $50 a barrel for Brent crude, after data showing that US oil output fell by 120,000 barrels a day in September.
But grains played their role too in helping the index, especially wheat, which in Chicago for December delivery soared 2.1% to $5.26 ¼ a bushel, a two-month closing high.
This also saw the contract close above its 100-day moving average for the first time in nearer three months.
Wheat soars
The dollar helped dollar-denominated exports, including many commodities, by making them more competitive in dropping 0.6% against a basket of currencies.
The IMF report touched a raw nerve for currency markets, in that it was largely emerging market worries which this month prompted the Federal Reserve to hold off raising US interest rates.
And wheat had other reasons for its rise, as weather worries continue in Australia and the former Soviet Union, and are growing, to a lesser extent, in the US too, where data overnight showed sowings lagging in dryness-touched southern Plains hard red winter wheat growing areas.
Indeed, Kansas City hard red winter wheat futures for December in soaring 2.7% to $5.15 ¾ a bushel.
(The rising wheat market is discussed more fully elsewhere on Agrimoney.com.)
Harvest data
But the rise in wheat was not the only factor supporting futures in rival grain corn, which also took support from data overnight showing a slower-than-expected pace of US harvesting.
US corn harvest was estimated at 27% complete as of Sunday, according to the US Department of Agriculture, 3 points behind market expectations, and compared with average progress of 32%.
“The rate of harvest activity provided underlying support, coming in below trade estimates and the five-year average,” CHS Hedging said.
Weaker-than-expected progress offers a small window of risk, besides implying lesser supplies for now to weigh on the market.
Harvest downgrade ahead?
And, thinking of lower supplies, expectations that the USDA will on Friday, in its monthly benchmark Wasde report, cut its estimate for the domestic harvest also attracted buying.
“Corn and soybeans were supported by the general opinion in the market place that corn and soybean acres will be lower in Friday’s numbers,” said Darrell Holaday at Country Futures.
Traders expect the USDA to cut its harvest estimate by a little over 100m bushels to 13.48m bushels, according to a Bloomberg poll.
The expected downgrade is based on ideas of cuts to both acreage and yield expectations.
Corn futures for December closed up 1.0% at $3.98 ¼ a bushel, the best close for a spot contract since late July.
‘The headline grabber’
Fellow row crop soybeans could not match that gain, adding 0.4% to $8.88 a bushel for November, although that was enough to see the contract close above its 40-day moving average for the first time in two months.
The US harvest data showed better progress than investors had expected for the oilseed, with 42% in the barn as of Sunday, double the proportion a week before, and 10 points ahead of the typical pace.
Furthermore, the USDA raised by 2 points, to 64%, the proportion of the crop rated “good” or “excellent”, at a time of year when condition declines are the norm.
“The headline grabber of the crop progress report were soybean conditions which rose counter-seasonally,” said Tregg Cronin at Halo Commodity Company.
“When conditions rise late in the season, or once harvest has begun, it is usually a sign of better-than-expected yield expectations.”
Country Futures Darrell Holaday said that the figure was “confirmation of the yield reports being better than expected”.
‘Aggressive forward selling’
Still, futures recovered from early losses in part thanks to expectations that the USDA will cut its forecast for the US soybean harvest in Friday’s Wasde, despite the potential for a small upgrade to the yield estimate.
This is expected to be more than offset by a cut of some 600,000 to the harvested acres number, according to the Bloomberg poll.
Furthermore, as an extra positive, AgRural data showed Brazilian farmers have sold 37% of their soybean crop, up from 13% a year ago, and implying less unfulfilled selling pressure on this score.
“The weaker Brazilian currency has resulted in improved domestic grain prices and Brazilian farmers have taken advantage of the improved prices to aggressively forward contract their anticipated 2015-16 grain production,” said analyst Michael Cordonnier.
“The Brazilian currency devalued 9.3% during the month of September and 23% since mid-July.”
Storm damage
Among soft commodities, cotton managed decent headway, closing up 1.7% at 62.08 cents a pound in New York for December delivery, boosted by ideas of significant crop damage in eastern growing areas from Hurricane Joaquin.
Although the USDA crop report overnight did not show up much drop in crop condition in South Carolina, which was worst affected by the floods, it is not clear that the department has yet factored the damage in.
One USDA scout said that “it will take several weeks to accurately assess the agricultural damage.
“Survey efforts will start this week as soon as the officials allow that type of travel.”
‘Support to prices’
Commerzbank said that while South Carolina growing areas “account for less than 5% of the US cotton acreage, they are nonetheless of considerable importance due to their proximity to the US processing industry.
“Heavy rainfall and flooding can result not only in reduced crop volumes but can also impair quality,” with excessive rains followed by too little sun, for instance, leading to discolouring of fibres.
The bank added: “Worldwide production also looks set to decline further, giving rise to the first deficit on the global cotton market in six years.
“We expect this to lend support to prices, though the high international stock levels should preclude any excessive price buoyancy.”
‘Overbought condition’
But raw sugar struggled to maintain its rally, closing down 0.01 cents at 13.63 cents a pound in New York for March delivery, pausing for breath around seven-month highs after its strong gains of the past couple of weeks.
“The recent rally has led to an overbought condition in the market,” Sucden Financial said.
“This is unsurprising given the whipsaw first caused by the sell- off resulting from India’s announcement of ‘compulsory’ raw sugar exports, followed by the 6% increase in the price of gasoline in Brazil”.
Higher Brazilian gasoline prices feed through into higher ethanol prices, in turn putting upward pressure on values of sugar, to ensure the sweetener gets its share of the cane harvest.
Real recovery
The drop in the sugar price defied an increase in the real, which recovered 1.6% against the dollar, so boosting the value in dollar terms of assets in which Brazil is a major player.
Arabica coffee fared better at riding the rising real, closing up 0.4% at 128.10 cents a pound for December delivery.
