AG COMMODITY PRICES FALL FOLLOWING BRAZIL BRIBERY SCANDAL REPORT
May 19, 2017
If anyone still needed persuading of the influence of Brazil on agricultural commodity markets, Thursday provided conclusive proof.
The focus of the world's political news moved from Washington - and the claims that President Donald Trump asked former FBI director James Comey in February to abandon a probe into former national security adviser Michael Flynn - south to Brazil, and claims that President Michel Temer endorsed bribery payments.
The allegations against Mr Temer - which are said to stem from a tape handed over as part of a plea bargain by Batista brothers that head meatpacking giant JBS, and who face their own probes - sent the Brazilian real down 8% against the dollar, to a six-month low.
Given Brazil's status as a major grower and exporter of a range of agricultural commodities, the impact of the real's slump on ag prices was dramatic - and negative.
Coffee, sugar sink
In the soft commodities market, futures in coffee and sugar, of which Brazil is the biggest producer and exporter, tumbled, with the weaker real cutting the value of the crops in dollar terms.
Raw sugar for July stood 1.3% lower at 16.09 cents a pound in early afternoon deals in New York, if retaking the psychologically important 16.00-cents a pound mark lost earlier in a drop to 15.58 cents a pound.
Arabica coffee for July plunged 2.9% to 130.50 cents a pound - despite some downbeat forecasts by Conab for the Brazilian harvest of the bean.
By contrast robusta coffee, on which Conab was more positive in output terms, lost a relatively modest 0.8% to $1,981 a tonne in London for July delivery.
But then Brazil is a relatively minor force in robusta shipments, in which it ranks well behind Vietnam, while being top dog in arabica - meaning that the real's tumble stands to have a bigger effect on arabica trade.
'Immediate competitive advantage'
In grains markets, it was corn and, in particular, soybeans which suffered worst, with the weaker real making Brazilian exports much more competitive versus US ones.
"When the United States' largest soybean export competitor sees their currency drop by 7%, an immediate competitive advantage is gained with respect to pricing into major importers," said Tregg Cronin at Halo Commodity Company.
"The plunging of the Brazilian real has made Brazilian soybeans a cheaper and more attractive options on the world market," said Matt Gallik at CHS Hedging.
"This inversely has Chicago soybean futures weaker on the idea of less export demand."
'Stepped-up farmer selling'
What's more, the tumble of the real, in putting upward pressure on Brazilian prices of assets traded in dollars, looked like reversing a trend which has been seen as supportive to Chicago prices, in making the South American country's farmers more willing to sell.
Brazilian growers had - while the real was appreciating earlier in the year, cutting the value in Brazilian terms of dollar-denominated assets - slowed sales to a crawl in the hope of higher local prices ahead.
The fallout from the real's tumble "may trigger stepped-up farmer selling of their undersold 2017 soy crop", said Richard Feltes at RJ O'Brien.
"Chicago soybeans and corn have tumbled... as the weaker Brazilian currency firms cash bean and corn values for Brazilian producers, increasing hedge pressure," said Benson Quinn Commodities.
'High side of expectations'
Just how much they tumbled, well, corn futures for July stood down 1.6% at $3.65 1/2 a bushel for July delivery, back well below their 200-day moving average.
Soybean futures fared worse, plunging 2.8% to $9.38 1/4 a bushel for July, approaching a nine-month low for the contact.
Ironically, the Brazilian news swamped some more positive news for US crop prices, in the form of decent weekly US export sales data.
"Weekly export sales for corn, soybeans and wheat were on high side of expectations and were above pace needed to reach US Department of Agriculture forecasts" for the full 2016-17, Benson Quinn Commodities said.
"Shipments resumed strongly again last week as well for all three commodities."
'Heavy rains and cooler temperatures'
Meanwhile, US wetness continued to raise concerns over the pace of spring sowings - a support for corn prices at least, if less so for soybeans given that, with a slightly later seeding window, they can pick up area if farmers cannot get their corn planted in time.
"Heavy rains and cooler temperatures are staying in the forecast for much of the Midwest over the next 2-3 days," said CHS Hedging's Matt Gillik.
"Weather forecasts are wet and cold for most through the weekend," Benson Quinn Commodities said.
"Extended forecasts are also cool which should be supportive if it weren't for the selling coming from the Brazilian farmer."
Halo's Tregg Cronin, thinking in particular of corn, said it was "difficult to dismiss the current forecast and the additional damage that could do to the recently planted crop.
"We don't need much of a dip in national yield to snug our corn balance sheet right back up."
Wheat futures outperformed in Chicago, in dipping a more modest 0.9% to $4.23 a bushel.
But then Brazil is not an exporter of the grain - and is in fact a structural importer, largely of hard wheat.
And, while feeling pressure from the drop in rival grain corn, there is some supportive comment over the potential for wetness to cause damage in a crop now being harvested in some areas.
"Abundant rains through early next week will increase wetness and disease pressure again for wheat," said weather service MDA.