Grains on the move ahead of key planting report.
The Bloomberg Grains index which tracks the performance of six major US grain and soy contracts reached a five-week high, driven by a 3.6% gain in corn amid a pickup in demand from China for US grain. Meanwhile, wheat briefly traded above $7 on concerns Russia may seek a temporary pause in its sales of wheat and sunflower oil to achieve higher prices. In addition, dryness across the US Plains has lifted the price of May Kansas hard-red winter wheat (HRW), thereby adding some support to the Chicago soft-red winter (SRW) variety.
Apart from these price supportive developments occurring just after speculators had been aggressive sellers, especially of corn, the market was preparing for the release of a key report from the US Department of Agriculture. The Quarterly Stocks and Prospective Planting reports were expected to show the smallest wheat and corn stocks in 15 and 9 years, respectively. In addition, a 19% reduction in the cotton acreage to 11 million acres and reductions in other smaller crops has led expectations that farmers will plant a bigger area of soybeans (1% to 88.3 million acres), corn (2.6% to 90.9 million) and not least wheat (9% to 48.9), the largest acreage allocation in seven years. Note: The result of these potential market moving reports were not known at the time of writing.
Copper remains supported by falling stockpiles and China demand
Copper has managed to recover from losses seen during the mid-month banking crisis related sell-off. This highlights underlying demand for a metal where rising demand from electrical vehicles, renewable power generation and energy storage and transmission is already offsetting the property slowdown in China – which has been a key source for demand in recent years – and an economic slowdown in the West.
Visible copper inventories monitored by the futures exchanges in Shanghai, London and New York have declined by 29% during the past five weeks. If the present trend of surging demand in China continues, Goldman Sachs says visible global copper stockpiles could be depleted by August. Countering strong demand, we have seen global production continuing to recover from a fourth quarter slump when production troubles in Chile and Peru as well as lockdown in China triggered a 19% quarter-on-quarter reduction, the lowest output in six years according to S&P Global.
HG copper has traded within a downtrend since mid-January, driven initially by disappointment over the pace of the economic recovery in China and growth concerns elsewhere. Recently, as banking worries eased, a continued drop in warehouse-monitored stocks has seen the price settle into a $4.00-$4.15 range. Having flipped their net position from a +40,000 contract long on January 31 to a 7,000-contract short seven weeks later, managed money accounts will be forced back on the buying side should an upside breakout occur.