Trump tailwind, in form of weaker dollar, propels ags higher


From the Trump bump to the Trump slump.

The dollar, having hit a 14-year high  of 103.82 against a basket of currencies just before Donald Trump became US president, amid ideas of reforms which would boost economic growth, extended its retreat on Wednesday, falling below 97.5. (that represented a drop of 7% from the January high.)

That set fresh six-month lows. For the first time this week, the dollar has traded lower than before Mr Trump was elected.

The good news for exporters of assets denominated in dollars, such as many commodities, is that a weaker greenback makes such goods more affordable, tending to bring upward pressure on prices.

Softs harden

Call this a Trump tailwind?

Certainly, for dollar-traded agricultural commodities, the prevailing direction was upwards on Wednesday, with soft commodities proving best at catching the breeze.

This despite a fall in the real even against a depreciating dollar, with the Brazilian currency – so important for prices of the likes of coffee and sugar given the South American country's pre-eminence in production and exports – apparently disfavoured by a broader retreat from risk.

Raw sugar futures soared 2.6% to 16.30 cents a pound in New York for July delivery, supported too by ideas of rains for cane-growing areas – boding ill for harvest progress, and thereby processing rates and output of the sweetener.

Sugar 'floor'

Furthermore, "ethanol parity" – when processing cane into ethanol or sugar is equally remunerative for Brazilian mills, viewed as a price floor for the sweetener - got more references, including in comments by Adecoagro.

Separately, Sucden Financial said that "traders still seem to be pointing to sub-15 cents as a floor, citing the ethanol parity, now estimated at 14.50 cents a pound".

The broker also flagged bullish talk of "further imports [by] India, despite several official statements discounting this".

"We feel, in short, that the market is up because it failed to continue downwards and the selling pressure from the speculative community seems to have abated."

Arabica vs robusta

Also in New York, arabica coffee jumped 2.2% to 131.40 cents a pound for July delivery, amid short-covering seen as encouraged by a series of factors, including the upcoming "frost season" (if there are any), and the prospect later this week of a key report from Conab on Brazilian coffee prospects.

Conab has a habit of conservative production forecasts which, if deemed credible by the market, could support prices at a time when hedge funds have a substantial net short in arabica futures and options.

Arabica coffee for once outperformed London-traded robusta coffee, which added 1.9% to $1,997 a tonne for July, equating to about 90.70 cents a pound, so still showing a historically small discount to arabica beans,

Indeed, this "still-relatively-low arbitrage, remains not such an attractive factor for the many price sensitive roast and ground roasters who have considered robusta coffees to be an opportunist discount component, within their mostly arabica coffee blends", said merchant I&M Smith.

'Increased precipitation'

In grain markets, the price trend was positive too, although hefty gains were less easy to come by, with investors still reluctant to take on long bets given large world supplies, and with many burnt by the last notable rally - in wheat earlier this month, on US weather fears, but which fizzled out in a couple of days.

Oats managed strong headway, ending up 3.3% at $2.35 Ѕ a bushel for July delivery, and closing back above their 100-day moving average, recovering ground lost earlier this week on rapid US sowings progress, and some improvement in crop condition too, as revealed by USDA data.

But Chicago wheat managed a more modest of 1.1% gain to $4.27 a bushel for July, despite a host of factors ranged in favour of the grain, including a wet US Plains forecast.

"The overnight shift in the weather forecast points to increased precipitation for the southern Plains through late May and possibly extending into early June," said Benson Quinn Commodities.

'Moisture that isn't needed'

While moisture is generally beneficial for crops, the large extent of rains hitting crops is raising fears of spreading disease.

"This is moisture that isn't needed," said Benson Quinn Commodities.

"A continued wet outlook in the hard red winter wheat area through the end of the month is leading to most of the wheat buying, primarily short covering," said Darrell Holaday at Country Futures.

"The concern would be heightened if the wet conditions persist into the first week of June."

Early harvest results

Furthermore, the precipitation is coming at a time when harvest is just beginning, and rain is a definite worry, provoking concerns over quality damage besides slowing combines.

Early results from Oklahoma would appear reasonable.

"Test weights have been averaging 63-65 pounds a bushels, with yields ranging from the low 20s to mid-40s bushels per acre," said the Oklahoma Wheat Commission. (In 2016, the average yield for the state was 39.0 bushels per acre – but that was an unusually strong year.)

Still, "producers across the state are hoping the predicted storms this week do not damage or pro-long the beginning of harvest".

Egyptian order

Meanwhile, on the demand side, a tender from Egypt's Gasc grain authority highlighted just how competitive US wheat is, with hard red winter wheat offered as low as $185.50 a tonne (and bought at $185.40 a tonne).

Black Sea supplies, typically renowned for their competitiveness, were not offered below $197 a tonne.

Gasc bought its first US wheat cargos at tender in more than two years.

Nonetheless, Kansas City-traded hard red winter managed a rise of 0.9% to $4.26 Ѕ a bushel, a discount to Chicago soft red winter wheat.  

'Heavy precipitation is a concern'

For corn, there was some support on both sides of the balance sheet too, with US production ideas overshadowed somewhat by heavy rains, now turning their attention on the western Corn Belt.

"Heavy precipitation is a concern in the western Corn Belt... and upcoming weather models show more rain to come," said CHS Hedging, although drier conditions in the eastern Corn Belt are proving more welcome for farmers, after early weather setbacks.

"Abundant rains in western areas will stall corn and soybean planting; planting should progress well in eastern areas," said weather service MDA.

That said, much of what is being seeded in the eastern Corn Belt is being sown for a second time.

"There is a lot of replant going on in Illinois and Indiana," said Darrell Holaday at Country Futures.

Poor start in Illinois

Indeed, if anyone doubts the potential for rains not always to be favourable for crops, they should glance at the crop rating for Illinois corn, as unveiled by a state USDA report on Monday.

At 42% of the crop rated good or excellent, that represented a fall of 26 points in the reading year on year.

"Further, this would be the lowest initial rating for Illinois since 1992 and the third lowest of the last 30-years," said Tregg Cronin at Halo Commodity Company.

Meanwhile, on the demand side, US ethanol data for last week came in at 1.03m barrels a day up 21,000 barrels a day, although a rise too in stocks of 395,000 barrels week on week to 23.41m barrels raised  worries about actual demand for the biofuel.

Corn futures for July rose 1.1% to $3.71 Ѕ a bushel.

US vs Brazilian prices

Soybeans underperformed this time, as might actually be somewhat predictable, given the extent of talk of spreading between the oilseed and grains (often in the form of long soy- short wheat bets, for instance).

The July contract shed 0.1% to $9.75 ѕ a bushel.

The weaker real was not so helpful, in raising the prospect of Brazilian farmer selling resurfacing, after a hold-off seen as a big help to US demand.

Actually, "US export soybean offers are on par or cheaper than Brazilian stem," said Halo's Tregg Cronin, noting a dynamic unusual in that, with the US harvest long past, and Brazil's still ongoing, it is the South American country which could be pricing itself into the market at this time of year.

"The fact US soybeans are still competitive for summer slots is a morale victory," Mr Cronin said.

There was also mention of heavy rains due in Argentina, potentially hampering the last stages of harvest (now roughly 70% complete), and hurting the quality of crop still in the field.


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