Was the retreat in grain prices in the last session just a temporary
reversal on profit-taking - a retreating wave in an incoming tide?
Or was it a high water mark?
The selling evident in grain markets in early deals on
Friday back expectations from many commentators that the sell-off will prove
more than a passing fancy.
Factors as simple as the calendar appeared to be on bears'
side, with Monday bringing a US holiday, President's Day, meaning a long
weekend – ahead of which investors, seeing an extra day without being able to
trade, often take a cautious line, booking profits.
"I would anticipate continued risk off mentality going into
a long weekend with no markets on Monday for President's Day," Benson Quinn Commodities
Such an idea seemed to be evident in outside markets too, with
US shares set for small declines on
opening later, after on Thursday ending their longest record-setting streak
(The four key indices – Dow Jones Industrial Average, Nasdaq
Composite Russell 2000 and S&P 500 - had all closed set record highs on each of the
four previous trading days, a feat last achieved in June 1995.)
Asian share markets closed broadly lower on Friday, with
Tokyo's Nikkei index shedding 0.6%, and Shanghai stocks by 0.9%.
Meanwhile, currency markets ranged against US-traded ags too,
with the dollar nudging 0.2% higher
against a basket of currencies, so making dollar-denominated exports that much less
This time, the dollar even gained against the rouble, which retreated 0.5% against the
greenback – and is now down more than 2% from Wednesday's 18-month high.
The rouble is particularly important for the wheat market,
given Russia's position as an origin of ample quantities of competitively
priced wheat – which has begun to look less competitive as the currency has appreciated.
And already, US export sales - as of data for last week
released on Thursday - had look "underwhelming", according to Tobin Gorey at
Commonwealth Bank of Australia.
Indeed, in the last session "it looks like the closing bell
stopped the price falls being still larger," noting too that "farmers were
reported to be taking advantage of higher prices".
"There is a greater sense that US wheat prices were too high
for the remaining export task. That probably meant the market has an itchy
Meanwhile, there is a sense that trend by hedge funds of
covering some of their hefty short positions in Chicago wheat is coming to an
Open interest in Chicago wheat futures fell by 906 lots in
the last session, compared with 3,398 lots on Wednesday and 3,854 contracts on
And Benson Quinn Commodities said that "global values, which
hadn't rallied with US futures, have had a weaker tone the last couple of days",
noting also that Iraq passed on a tender.
That said, Egypt's Gasc agency unveiled a tender overnight (as
it often seems to do after a steep drop in prices) results of which will be
unveiled later, while Libya is expected to come to the market over the weekend.
On the fundamental side, FranceAgriMer pegged the French
wheat crop at 92% in "good" or "excellent" condition, stable week on week, although
2 points lower year on year.
Chicago wheat for March stood down 0.9% as of 10:15 UK time
(04:15 Chicago time), well below its 200-day moving average and earlier
breaching its 10-day moving average too.
Returning to US exports, it isn't just higher prices of crops
themselves threatening competitiveness, but of transport too, at least to the
important Pacific North West ports.
The "logistics mess on the west coast continues to take a
toll" on US shipments, Benson Quinn Commodities said.
At Halo Commodity Company, Tregg Cronin calculated that US
costs for transporting corn or soybeans to China, via the Pacific North West,
were actually bigger than those for Brazil, passing from Mato Grosso through
the South American country's famously tortuous infrastructure
PNW vs Gulf vs Brazil
Using a US rail car cost of about $4,000 per wagon,
calculated from BNSF rates, adding in the "actual tariff rate for using the
car, not just securing it" works out at about $90 a tonne.
Adding in ocean freight, of $17.25 per tonne for getting the
crop from the Pacific North West to China, reaches $107.25 a tonne.
"How does this compare to the US Gulf or Brazil?" Mr Cronin
Transporting the crop via barge to US Gulf ports (from central
Illinois) works out at $49.30 a tonne.
"Total landed costs from Rondonopolis, Mato Gross to China
would be $94.75 a tonne, so all in, the Pacific North West is most expensive."
'Missed the mark'
Whatever, US corn
export sales for last week, at 971,700 tonnes, "missed the mark", Joe Lardy at
CHS Hedging said, albeit with hope that lower prices will foster improvement.
CBA's Tobin Gorey said: "The US still has heavy corn
inventories to draw down.
"Our concern was that the upward creep in US prices would
start to stymie the renewed strength in export demand.
"Yesterday's retreat from the highs probably resolves some
of that issue."
Corn futures were cheaper still in early deals on Friday,
shedding 0.9% to $3.70 ¼ a bushel for March delivery, back below their 10-day
'Points to more
for March also lost ground, shedding 0.8% to $10.35 a bushel, finding some support
at the 50-day moving average, just under that level.
"Imminent South American supplies are increasingly limiting
the market's ability to sustain rallies," CBA's Tobin Gorey said, with Brazil's
harvest apparently chugging along nicely, and estimates recovering for the
weather-tested Argentine crop.
Indeed, Benson Quinn Commodities flagged that Thursday
offered "the sixth test of the $10.60-a-bushel level in the March contract in
the past seven sessions" – none of which had resulted in a sustained rally.
"The market is overbought and - with favourable weather
forecast for both Brazil and Argentina, lower trade Thursday and failure in the
grains to hold new highs - points to more selling."
Selling was the order of the day in the Kuala Lumpur palm oil market too, where the benchmark
May contract tumbled 2.4% to 2,858 ringgit a tonne, hitting a three month low.
This after a technical setback in the last session, when the
lot closed below the 100-day moving average, on a continuous chart, for the first
time in six months.
Prices have been tumbling on forecasts of South East Asian
production recovering, at last, from levels depressed by the 2015-16 El Nino –
ideas stoked on Thursday by plantations group Sipef.
In China, a major importer of the vegetable oil, palm oil futures for May fell by 2.2% to 5,978 yuan a tonne on the Dalian exchange.
Meanwhile, in New York, cotton
for May dropped 0.5% to 76.40 cents a pound, setting course for what would be a
fourth successive negative finish.
In fact, there were plaudits for Thursday's weekly US export
sales data for cotton, which traders at Ecom said "once again provided bullish
news", at 222,200 running bales, "up 7% from the previous week and well above
the required rate of 65,800 running bales to meet the USDA export projections"
CBA's Tobin Gorey said that "the US reported bumper cotton
export sales for last week.
"This week's price
action though would suggest the ferocity of that demand is perhaps tapering