21st Oct 2013, by Agrimoney
Two agricultural commodities, sugar and wheat, were notable for strong
performances in the last session, but only one managed to extend gains
into early deals on Monday.
And that wasn't sugar.
Prices of the sweetener gained 2.6% in the last session – and hit 20.16
cents a pound at one point, their highest in nearly a year - after fire
tore through a port warehouse belonging to Copersucar, Brazil's largest
producer of the sweetener and ethanol.
"This worsened concerns about the supply of raw sugar," Joyce Liu at
Phillip Futures said, noting also the rain which has been slowing
Brazil's cane harvest.
'Compounded market worries'
At Commonwealth Bank of Australia, Luke Mathews said: "The fire in
Brazil spooked traders and led to significant short covering and large
spread movements.
"Brazilian sugar production is already down on expectations this year, so any further losses compounded market worries."
However, was the damage quite as severe as had been thought?
While it is as yet unclear for how long Copersucar sugar export
activities will be disrupted for, with estimates between three and six
months, the co-operative did say that 180,000 tonnes of raw sugar had
been destroyed - less than the 300,000 tonnes initially reported.
Raw sugar for March stalled at 19.50 cents a pound in New York as of at
09:55 UK time (04:55 New York time, 03:55 Chicago time).
'Large buyers of US wheat'
As for wheat, it managed to extend its winning streak, adding 0.6% to
$7.10 ¼ a bushel in Chicago for December delivery, as worries over
tighter world supplies persisted.
Argentina's estimate last week of an 8.8m-tonne harvest - well below
forecasts from other commentators including the US Department of
Agriculture, which has the crop at 12.0m tonnes – continues to prove a
major prop to values.
On the face of it, "lower wheat production in Argentina limits their
exportable surplus and means Brazil will remain large buyers of US
wheat," as Mr Mathews noted.
But there is more, in that many investors believe a crop of that size
will prompt Argentina's government, which has a rich history of
intervention in agricultural markets, will ban exports altogether.
While denting export earnings, this would keep domestic prices in check,
and avoid the risk of spiralling food inflation which, as North
Africa's recent experiences have reminded, can fuel social unrest.
'Rain will be critical'
But US prices are also being lifted by ideas that supplies from some
other major exporters are not so healthy either, with Ikar, the market
analysis group, estimating on Friday that the rain restrictions to
autumn sowings have already cost Russia 4m tonnes of wheat production.
Sure, area left void now can be planted in the spring. But spring wheat has lower yields than winter wheat.
Besides, farmers will likely opt to put much of the non-seeded area into spring crops such as corn or sunflowers instead.
Meanwhile, although Australia's nascent harvest is not providing any major concerns, there are some niggles.
"Hot and dry conditions continue to plague producers across the eastern
states, leading to a loss of yield potential," Mr Mathews said, although
noting forecasts for rains heading into southern New South Wales and
Victoria.
"The rain will be critical in ensuring further yield losses are avoided."
Iraq tender
There are ideas on the market, anyway, of hefty demand for US supplies, from China as well as Brazil.
Benson Quinn Commodities, flagging fresh rumours of sales of five-to-six
cargoes of wheat to China, equivalent to perhaps 200,000-250,000
tonnes, said that "any confirmation of rumoured business will attract
additional buying".
Late on Friday, the US Department of Agriculture revealed, in delayed
data, that US wheat export sales for the week to September totalled
837,000 tonnes, twice some market estimates.
Still, the market on Monday also received a reminder that US supplies
can be uncompetitive to some destinations, with an Iraq tender showing
Ukraine wheat as the cheapest offered, at $326 a tonne c&f, while
Romanian was offered at $348.35 a tonne and Russian at $355 a tonne.
Australian wheat was priced at $362.50, Canadian and $369.90 a tonne and US at $394 a tonne.
Backlogged data
With wheat firm, that gave some help to corn too, which added 0.3% to
$4.42 ¾ a bushel in Chicago for December delivery, keeping below $2.60 a
bushel at least its already high discount to wheat.
The USDA data showed decent corn exports too in the week to September
26, of 775,300 tonnes, in the top end of market estimates, and prospects
for USDA data backlogged by the Washington shutdown revealing further
large orders gave bulls some traction despite forecasts for a record US
harvest.
"Corn futures continue to chop higher as traders wait for updated weekly
export sales. Many expect a large number due to talk of sales with
China, Japan and Mexico," CHS Hedging said.
As for the harvest, on progress, a USDA report revealed after the close
of play is seen showing some 35% of the US crop in the barn.
Strong exports
For soybeans, the figure is expected nearer 55-60% completion, and with
light showers this week expected to see continuing rapid progress.
"This equates to near 1.89bn bushels of fresh supplies based on USDA's
forecasted production of 3.15bn bushels in September, and should start
to alleviate some of tight pipeline issues," Kim Rugel at Benson Quinn
Commodities said.
Still, there are ideas of huge figures for US export sales too to be
released from the USDA, on top of shipments which have already reached
976m bushels so far for 2013-14 – 71% of the forecast for the full
season, less than two months in.
A year ago, the figure was 64%.
Soybeans for November added 0.4% to $12.96 a bushel.
