Headlines:

  • Markets ‘underpricing’ arabica coffee futures, says Marex
    Marex Spectron signalled optimism over a recovery in arabica coffee futures, saying that current values “underprice” a looming output deficit, amid a rash of selling by momentum funds also evident in the cotton market. The London-based commodities house said that price signals from cash markets for arabica coffee were “finally turning”, flagging relatively strong values of Colombian and Brazilian supplies compared with New York futures. The reversal was happening at a time when the arabica coffee market was moving from a “material surplus” in 2016-17 “into material deficit” for 2017-18. “The 2017-18 arabica deficit is beginning now to be felt in the cash market.” While Marex did not split out its individual supply and demand estimates for arabica coffee, including robusta too, it forecast a world production shortfall of 4.4m bags for 2017-18, compared with a surplus of 900,000 bags in 2016-17.
  • Texas rains ease cotton market nerves, after US crop rating falls anew
    Ideas of more benign weather for the US cotton belt eased investor nerves, after a week when the crop faced setbacks ranging from “serious damage” from dryness to a battering from Tropical Storm Cindy. The US Department of Agriculture rated at 57%, the proportion of domestic cotton rated “good” or “excellent” as of Sunday, a drop of 4 points week on week. While still an above-average reading, with the mean at about 52-53% for the time of year, the figure underlined the extent of the deterioration in a cotton crop which had two weeks ago rated as 66% good or excellent – easily the highest figure for mid-June on data going back to 1995. However, the unusually rapid deterioration reflects a series of setbacks from weather extremes. It also tallies with persistent market talk that the US crop was not in as good health as official data had suggested, although expectations remain of a strong harvest this year – as reflected in a drop in futures prices this month.

Summary:

Massive drop in the US Dollar injected a bit of revival in the likes of Wheat today. Soybean was also up slightly but Corn was neutral. Against the backdrop of a 1% decline in the greenback, the affordability of dollar denominated assets got a bit of a jump. The US Dollar index has been range bound since the middle of June moving between 97.80 and 96.64. We have maintained that key support lives 96.64 and once a significant break of 96.64 is sustained a move down to 95 with the possibility of reaching 93.50 may not be far behind. Such a move would point toward big spikes for the Ag and commodity complex.

The current market drivers lately seem to be crop conditions and position covering ahead of the stocks and acreage reports this Friday June 30th. Yesterday’s crop conditions were a bit supportive because traders were looking for a slight increase to both Corn and Bean ratings. Speculators continue to hold large Soybean short positions. The record short is 135k contracts and they are not far behind holding 116k short contracts as of the latest reporting. There could be a healthy short covering rally if Friday’s report winds up being bullish.