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PM markets: ags rise amid short-covering ahead of key report, 14.09.15

Agricultural commodity investors were, broadly, in buying mood, despite the soft Chinese trade data, which implied further concerns about demand for raw materials in a huge importer of many.

Roberta Kabot, at ADM Investor Services, termed "dismal" the stats showing that Chinese imports fell 14.3% year on year in August, a 10th successive monthly decline, while exports fell by 6.1%.

"But the Chinese government once again stepped in and supported their stock market," noted Darrell Holaday at Kansas-based broker Country Futures.

'Risk-on attitude'

This had helped a "risk-on attitude in the marketplace today, and that is generally supporting the ag commodity sector", Mr Holaday said.

Indeed, among stock markets, Wall Street shares were up 2.3% in late deals, following a close up 1.2% for London equities, and a 1.6% gain for Frankfurt stocks, besides the 2.9% gain overnight in Shanghai shares.

And the dollar provided a little add-on help for dollar-denominated exports, such as many commodities, by easing 0.3% against a basket of currencies.

The CRB commodities index gained 0.9%, helped by a 3.8% surge to $49.44 a barrel in Brent crude.

'Short-covering attitude'

And as an extra incentive for investors to think twice about extending short positions in agricultural commodities - which they have raised for a seventh successive week, the longest spree in more than a year – there is the prospect of revised US Department of Agriculture crop estimates.

The USDA on Friday unveils its monthly Wasde crop report, a series which represents a highlight of the ag investor's calendar.

And investors are expecting the briefing to reveal a drop of some 100m bushels, to 1.61bn bushels, in the estimate for US corn stocks at the close of 2015-16.

"There is definitely a short-covering attitude in the corn and soybean markets ahead of Fridays USDA numbers," Mr Holaday said.

Yield downgrades?

The soybean inventory estimate is seen being downgraded by 46m bushels to 424m bushels, according to a Bloomberg survey.

While wheat will see a rise in the US stocks forecast, traders believe, at 18m bushels to 868m bushels, the upgrade will be relatively modest, and potentially more than factored in by the slump in Chicago futures of the grain to five-year lows last week.

Ideas of a downgrade to estimates for corn and soybean stocks reflect ideas that the USDA will cut its estimates for the domestic yield.

For corn, the yield is seen being cut by 2.3 tonnes per acre to 166.5 tonnes per acre, and for soybeans by 1.8 tonnes per acre to 46.1 tonnes per acre.

Whether these downgrades are likely, well, such ideas have been given credence by talk of mixed results from the early US harvest.

'Disappointing yield reports'

Mr Holaday said that "some corn yields in Illinois continue to be slightly disappointing", if noting that results in the western Corn Belt "have been very good" and it is "still awfully early" in the harvest to be drawing up conclusions.

At Chicago-based RJ O'Brien, Richard Feltes highlighted "disappointing early US yield reports".

And in Europe, traders at a major commodities house, with significant North American interests, said that "there have been reports of some spectacular crops in the western Corn Belt, although those in the east are still showing the effects of the wet weather in the spring".

One effect of this wetness was to leach away nutrients which corn in particular needs.

"Corn is maturing rapidly but many spots are seeing the effects of nitrogen loss," CHS Hedging said.

Hot stuff

Furthermore, weather has not been so ideal, with CHS noting that while "the western Corn Belt has received some rain but the east remains hot and dry", and would welcome some moisture.

"Indianapolis has seen every day so far in September top 90 degrees Fahrenheit."

The upshot is that investors expect weekly USDA crop data later to show a 1-2 point drop in the proportion of US corn and soybeans rated "good" or "excellent" – declines which would be seen as likely heralding yield downgrades in the Wasde.

Corn for December gained 1.5% in Chicago to close at $3.68 ј a bushel.

Soaring palm

Soybeans for November, meanwhile, gained 1.2% to $8.79 ј a bushel, enough to see the contract close above its 10-day moving average for only the second time in a month.

Data showing higher-than-expected Chinese soybean imports last month, up 29% year on year, helped reassure investors, after a somewhat cautious note from USDA staff in Beijing.

Soybeans were also supported by a strong performance by soyoil, which for December closed up 1.6% at 27.17 cents a pound.

Soyoil was in turn supported by a bravura performance by rival vegetable oil palm oil, which added 2.1% to 2,092 ringgit a tonne in Kuala Lumpur, supported in part by concerns of El Nino-inspired dryness in Malaysia, besides by a weak ringgit.

Rapeseed, an oil-heavy rather than meal-heavy oilseed, gained 1.8% to E364.00 a tonne in Paris for November delivery, also helped by ideas that dryness is curbing sowings (ahead of the 2016 harvest) in Ukraine, a major exporter to the European Union.

Rare Russia downgrade

Back among grains, wheat for December closed up 1.7% at $4.75 a bushel in Chicago, and by 1.0% to E170.00 a tonne for the Paris December lot.

Russia provided some support, with a downgrade by Ikar of 1.2m tonnes, to a still-strong 60.6m tonnes, in its forecast for country's harvest, following a series of upgrades to the crop.

The downgrade brought to an end a run of updates, with the European commodities house having noted that "the estimates of the Russian wheat crop continue to grow at 1m or more tonnes each week, with latest estimates now in the 62m-63m tonne range".

Furthermore, ADM Investor Services' Roberta Kabot noted talk that Moscow "may hike the wheat intervention price to secure better quality stocks".

Coffee gains

Among soft commodities, arabica coffee gained too, by 1.6% to 121.00 cents a pound in New York for December delivery, helped by a recovery in the Brazilian real, which regained 0.5% against the dollar.

A stronger real boosts the value of assets, such as coffee, in which Brazil is a major market force.

And while Colombia unveiled data showing a 24% rise year on year in exports last month, to 1.1m bags, there are doubts as to how sustainable this kind of increase is, with dryness, blamed on El Nino, raising a question mark over output growth.

Production was up 9.8% year on year in August, the slowest rate since March, and well below the 50% crack at which output grew in August last year.

'Dry conditions'

And New York cocoa for December gained 1.6% to $3,220 a tonne, earlier touching $3,230 a tonne, the highest since late July.

The prospect of presidential elections in Ivory Coast, the top producing country, next month is prompting some market concerns, with past polls sometimes ending in prolonged unrest.

And there is concern about dry weather there too.

At US broker Price Futures, Jack Scoville said that "buying interest" in cocoa had been spurred by "more reports of dry conditions in Ivory Coast and Ghana during July and August".

While West Africa has been "getting isolated to scattered showers… overall rain totals are below last year".

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