Is the decent start that corn futures made to 2017 down to a fund-buying spree?
If so, there may be more gains ahead this week - if the grain
market adage is true that big money flows come in three-day batches.
The last session marked "day one of fund buying in soybeans and wheat, and day two in corn", said Benson Quinn Commodities.
"Momentum, and the tendency for fund buying to take place in
three-day cycles suggest higher trade" on Thursday.
"Look for higher trade."
'All whipped up'
And that is not the only fund dynamic under the microscope,
with focus also on the prospect next week of index fund rebalancing, a
one-a-year process in which these funds rejig their portfolios back to the percentage
weightings suggested by the index followed.
This can involve buying laggards of the previous year, while
selling top performers – and front-running by other investors seeking to exploit
"The fund community is all whipped up about some decent-sized
buying that will need to happen in corn and wheat," said Joe Lardy at CHS
Hedging, if adding that for soybeans, rebalancing looks like proving less significant.
"The soybean rebalance is almost nothing and should not have
any effect on the markets."
History to repeat?
But buying was not in vogue in grain markets in early deals,
with investors more content to take a bit of profit on gains of the last
session, when corn, soybeans and wheat made decent gains, thanks to factors
ranging from poor southern US crop ratings to renminbi strength to excess rains
Not that many of these worries have gone away, with
Argentine, for instance, poised for more of the rainfall which has provoked
fears over progress in late sowings.
"After a dry start to planting, Argentina has now become a
little too wet and that is fresh in trade's mind after April rains this past
year supported a rally that took beans from $8.50 a bushel to $12 a bushel in
just three short months," Benson Quinn Commodities said.
CHS Hedging's Mr Lardy said: "The question is really how
much rain is going to fall and will that prevent some of the planting from
getting finished by the January 10 deadline.
"It looks like the heaviest rains in the next week stay to
the far north eastern part of Argentina."
According to Terry Reilly at Futures International, "rainfall
by this time next week will range from 2.00 to more than 5.00 inches from
northern Cordoba and southern Santiago del Estero in Argentina," besides in
southern Parana, Santa Catarina and Rio Grande do Sul in Brazil.
Meanwhile, a lack of precipitation remains a worry in north
Still, profit-taking is not the only motive for sellers,
with plenty of potential for a pick-up in farmer pricing, after what Richard
Feltes at RJ O'Brien termed a "slow year-end/new-year" spell.
Benson Quinn Commodities said: "Rallies will certainly be
met with producer selling and outlook for prospective increase of 5.0m planted
acres in the US this spring is also bearish."
Furthermore, anyone hoping for strength in the renminbi to spur extra buying by China,
a huge importer of agricultural commodities, may have been disappointed by the
lack of reaction overnight on the country's own commodities exchanges.
Soybeans for May, the best-traded contract, rose by a modest
0.8% to 4,271 yuan a tonne on the Dalian exchange, where palm oil, another major import, fell by 0.7% to 6,170 yuan a
This despite the offshore version of the yuan on Wednesday
rising 1.3% to stage its biggest one-day gain against the dollar in a year, and
adding a further 1% in early deals on Thursday to reach 6.80 per $1.
In Chicago, soybeans for March fell by 0.3% to $10.12 a
bushel as of 10:00 UK time (04:00 Chicago time), while Kuala Lumpur palm oil
dropped by 0.9% to 3,114 ringgit a tonne for the benchmark March lot.
'Potential for above-trend
yields is limited'
Selling was the order in grains too in early deals, even in wheat, despite the enhanced ideas of
damage from dryness and cold to the US winter crop – ideas underlined by crop
condition data released earlier this week.
"Ratings tend to decline over the winter, but these declines
are more significant than normal," said Benson Quinn Commodities.
"March, April and May are still key for winter wheat
production, but these lower ratings, along with dry conditions and cold temperatures
this week, suggest the potential for above-trend yields to be limited at this
As an extra support to wheat, Algeria has tendered for the
grain, illustrating end-user demand, although, less satisfactorily for US
markets, with European sellers seen as likely to win a lot of the business.
"European origins could get the lion share with probably a
reduced share of French wheat compared to previous seasons," Agritel said.
It will be interesting too to see if Argentina - which is
believed to have won part of an Algerian tender last month, besides winning
Egyptian business too with super-low prices – enters the dray again, having
missed an Egyptian tender last week.
Meanwhile, if buyers needed another excuse, besides the
prospect of index fund purchasing ahead too, there is the potential for a US
Department of Agriculture report next week (January 12) on US winter wheat area
to come in below forecasts.
RJ O'Brien's Richard Feltes flagged a "strong tendency for
trade to overestimate US winter wheat acres on the January crop report," ie to
forecast a figure higher than that which the US Department of Agriculture
"Recall that the trade has overestimated USDA January winter
wheat seedings in each of last four years by 900,000-2.7m acres," Mr Feltes
said, with the 2.7m-acre overestimate being in 2016.
"Trade estimates of 2017 US winter wheat seedings for the
January 12 report are not available as yet, but I suspect the market is looking
for a decline of 2.5m-3.0m acres, with 75% of the area cut being hard red winter
Still, Kansas City-traded hard red winter wheat for March traded
0.2% lower to $4.25 ½ a bushel, although that was a better performance than
Chicago soft red winter wheat, which for March dropped 0.4% to $4.16 ¾ a
One comfort for bears is a forecast for snow in the Plains, which
Futures International's Terry Reilly said "will see snow in western areas
through the end of the workweek that may help protect the winter wheat crop
from cold temperatures", and prevent further condition declines.
'Dampener on feed
With wheat lower,
corn, a key rival in the feed market, dropped too, if by a modest 0.1% to $3.59
¼ a bushel.
"Bird flu concerns," after outbreaks in many geographies,
including Europe and China, and (overnight) Chile, continue to put a dampener on feed demand," Mr
Reilly said, if adding that "we believe the trade has yet to really see the
impact on this event until evidence global feedgrain trade slows".
On the more supportive side for prices, Benson Quinn
Commodities said that the worries over rains in Argentina were increasing the
willingness to add "a risk premium back into the market.
"The fear is that above normal amounts of precipitation will
delay planting or increase the possibility of acres switching to soybeans."