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IKAR in Mass Media

AM markets: cotton slows its fall. but palm oil loses polish

12 августа 2016 года

Was that it for the panic in the cotton market?

A certain amount of calm was restored in early deals, at least, after the limit-down close to the last session, when rains in some key growing areas prompted a swift removal of weather premium.

"Investors were spooked when forecast rain in west Texas arrived earlier, and was much heavier, than expected," said Tobin Gorey at Commonwealth Bank of Australia, Texas being the top US cotton producing state, where dryness has been an issue.

(Indeed, official data late on Monday showed the Texas crop rated just 39% in "good" or "excellent" condition, well below the national average of 48%, itself a figure below the 56% a year before.)

Chinese auction recovery

Sure, opening trades on Wednesday's session showed a further sharp decline in values, sending the December contract to a four-week low of 71.00 cents a pound, a drop of 2.8%.

But that deficit had narrowed to 0.9% as of 08:40 UK time (02:40 Chicago time), as the contract recovered to 72.39 cents a pound, helped by a phlegmatic reaction by futures on China's Zhenghzou exchange to the last session's tumble in New York.

Zhenghzou cotton for January settled a modest 0.2% lower at 14,680 yuan a tonne, after touching 14,450 yuan a tonne earlier.

Tuesday's auction of cotton from China's huge state stocks showed an improving trend, with 17,613 tonnes sold of the 30,000 tonnes on offer, compared with 15,848 tonnes last time, and a 6,824 tonnes at the August 4 event.

* Data later showed sales at Wednesday's auction of 20,600 tonnes. *

That said the volumes are of course well below the near-100% take-up that investors were used to last month, which encouraged authorities earlier this week to extend the auction programme for a month until the end of September, in turn fuelling weakness in cotton markets.

'Serious issue'

Whether New York cotton can avoid a relapse may depend on further assessment of the boost to crops from rains, which also refreshed crops in the US state of Georgia and in India too, Louis Rose at the Rose Report noted.

Mr Rose noted that "droughty conditions continue to be a serious issue across Gujarat, India, although significant rainfall has occurred across portions of the region within the last 24 hours.

"The former Soviet Union continues to experience droughty conditions," important for cotton markets given Uzbekistan's status as a large producer.

"Regardless of the rains in India and the US, it seems probable that some of this season's production and quality potential has already been lost."

Surprise stocks fall

The palm oil market was also in focus, after the Malaysian Palm Oil Board reported a surprise, if small, fall in domestic inventories of the vegetable oil last month, by 4,000 tonnes to 1.77m tonnes.

That was well below the figure of 1.83m tonnes that the market had expected, and indeed is unusual, in falling at a time of year when Malaysian output is rising towards a seasonal peak.

Production in fact rose less strongly than investors had expected, by 3.5% month on month, while exports jumped 21% to 1.38m tonnes, more than 900,000 tonnes above investor forecasts.

Still, the Kuala Lumpur market appeared to have prepared for such data whatever in it run up of 6% in August up until the close of the last session.

On Wednesday, the benchmark October lot fell back 0.9% to 2,445 ringgit a tonne, looking a victim of "buy the rumour, sell the fact" thinking.

'Tack on additional yield'

In Chicago, the focus remains on data later this week from the US Department of Agriculture, in terms of the monthly Wasde world crop supply and demand report, and in particular what the briefing will show for US corn and soybean yield estimates, with some focus on export forecasts too.

For soybeans, hopes for the average yield appear to be holding up, with the 0.8 bushels per acre upgrade to 47.5 bushels per acre that traders expect from the Wasde, according to a Reuters poll, potentially being seen as an underestimate longer term.

"The bottom line on the soy yield is that given the yield performance in recent years - even the 2013 US soy yield hit 44 bushels per acre despite a warm and dry August—the soybean market will be inclined to tack on additional yield to whatever [the Wasde shows]," said Richard Feltes at Chicago broker RJ O'Brien.

Exports upgrade

Still, soybean futures for November gained 0.8% to $9.95 ѕ a bushel, battling to secure a foothold above their 10-day moving average, helped by the decent demand for US supplies confirmed through a series of sales reported unveiled by the USDA through its daily alerts system.

For 10 successive trading days, the USDA has unveiled such sales, the latest being for 120,000 tonnes bought by an "unknown" importer.

Benson Quinn Commodities said that "data suggest the USDA could raise exports by 100m bushels and lower carryout alike to 250m bushels" in the Wasde, on 2015-16 numbers.

Corn futures gain

And corn futures gained 0.5% to $3.34 a bushel for December, amid some greater doubts over the US yield.

Sure, the strong condition of the crop, according to weekly USDA data, is backing ideas of a strong upgrade in the Wasde to the current official corn yield estimate of 168.0 bushels per acre.

Traders expect the figure to be lifted by 2.6 bushels per acre, with some estimates as high as 175.0 bushels per acre.

However, there are some doubts, amid talk of "tipback", in which ears show void ends, curtailing yield potential.

'Possible wild card'

"Even with the high ratings and beautiful crop appearance some farmers are noticing tip back more than anticipated," said Benson Quinn Commodities.

"The corn yield stands out as a possible wild card for the report," Joe Lardy at CHS Hedging said, flagging that "the range of guesses is between 167 and 175 bushels per acre", in terms of forecasts for what the Wasde will show.

RJ O'Brien's Richard Feltes reported that "an active debate is underway over the harmful impact of warm nights and accelerated growing-degree-day accumulation, versus the beneficial impact of ample soil moisture in key states, above average uniformity of corn and reduced risk of early frost damage".

Exports question

Corn's gains helped wheat higher too, with Chicago's September contract up 0.2% at $4.18 a bushel, a rise which pushed it back above its 10-day moving average.

The grain also received some support from a further cut to hopes for French soft wheat exports, with Invivo pegging shipments outside the EU in 2016-17 at 4.8m tonnes - 300,000 tonnes below an estimate on Tuesday from Agritel, and less than half the 12.8m tonnes shipped last season.

"What the trade don't know if the [lost French] export business will spill over to Russia and Ukraine, or the US," said Terry Reilly at Futures International.

"Russia is expected to have an enormous crop this year," with Ikar raising its estimate for the country's wheat output by 1m tonnes to 70m tonnes.

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