If index funds are meant to be buying this week, why are
grain prices struggling?
This week's rebalancing process - an annual event in which
index funds rejig commodity allocations in their portfolios back to the
weightings of the index followed – was billed as bringing significant buying to
Yet corn and wheat futures posted only modest gains
in the last session, and started Tuesday on a weak note.
"The big impact was supposed to be in the corn and wheat
markets, but those were the commodities that brought up the rear" on Monday,
said Joe Lardy at CHS Hedging, terming the index fund rebalancing as "overhyped".
In fact, there were signs in the last session of buying by
index funds, which are reputed for purchasing late in the day.
Both corn and wheat did see late price revivals, which
pulled them up from negative territory.
Broker Benson Quinn Commodities, for instance, said that "corn
futures traded firmer near the end of the session that was supported by late
session index fund rebalance.
And in wheat, "the late buying in Chicago and Kansas City
may have been related to the index fund annual rebalance that continues for the
rest of the week."
'Aggressive offers tough
Besides, the rebalancing process, in being long telegraphed,
is anticipated by many other investors, who sell into index fund buying –
meaning the actual positive effect of the process may have already been
Furthermore, there are other plenty of other factors for
investors to consider too at the moment, including the prospect on Thursday of
a series of key US Department of Agriculture data, including the monthly Wasde
crop report, grain stocks data, and an estimate too of winter wheat sowings.
The latter are expected to be sharply lower, with a poll by Reuters
showing that investors expect a figure of 34.14m acres – down 2.0m acres year
on year and a figure which would mean the smallest area of plantings since
"Aggressive offers of wheat may be tough to find until
Thursday's report comes out, as the trade expects sharply lower acreage
numbers," said Benson Quinn Commodities.
Still, March wheat futures eased back a touch in Chicago in
early deals, standing 0.1% lower at $4.26 ¾ a bushel as of 09:45 UK time (03:45
Chicago time), although remaining above their 100-day moving average, which was
regained last week.
The USDA data are also expected to reconfirm record world
stocks of wheat at the close of 2016-17, pegged coming in at 252.0m tonnes, a
marginal downgrade on the previous estimate.
And cold weather worries for wheat, which helped prices rise
early last week, are not gaining momentum at the moment.
In the US, for instance, "pockets of winter wheat with lack
of snow coverage from Kansas to Illinois were exposed to cold temperatures over
the weekend, but we don't think it was threatening," said Terry Reilly at Chicago
broker Futures International.
And while freezing temperatures have been a concern in the
former Soviet Union too, where the Black Sea has reportedly frozen for the
first time in five years, "the impact of extreme cold, especially in Russia,
should be reduced thanks to the presence of snow protection", said Agritel.
Still, wheat was, despite easing, able to gain ground on corn, which dropped 0.6% to $3.58 a
bushel in Chicago for March delivery.
The wheat-corn spread, which has been depressed by the need
for wheat to buy more feed demand and erode its record inventories, is now up
more than $0.12 a bushel March basis so far in 2017.
While the Wasde is expected to trim estimates for US and
world corn stocks, prices are feeling pressure from the somewhat improved
weather outlook for South America.
There is also talk of increased selling by US farmers in a
new tax year, and at prices which remain higher so far in 2017, so offsetting the
positive impact too of decent US export data, as measured by cargo inspections,
out on Monday.
"USDA export inspections of 877,000 tons were above a range
of trade expectations, and up from 638,000 tons from the previous week,"
Futures International's Terry Reilly said.
So far in 2016-17, "inspections for corn of 17.936m tonnes,
or 706.1m bushels, are running 78.4% above a year-ago level".
'Trifecta of forces'
too, by 0.6% to $9.99 a bushel for March delivery, losing many of their gains
of the last session, when they were the surprise winner (in not being seen as a
major beneficiary of index fund buying).
"Oversold technicals, a tumble to two-month lows last week
and positive crush margins for China was the trifecta of forces that had beans
rallying" on Monday, Benson Quinn Commodities said.
In fact, there is plenty of talk of Chinese interest in US
soybeans, with the Brazilian harvest not progressed enough to see its new crop
supplies at port at yet.
Terry Reilly flagged "talk China was back in, pricing soybeans".
China may have been behind what CHS Hedging's Joe Lardy termed
a "surprise" sale for export of 120,000 tonnes of US spring wheat, announced on
"We didn't see any spring wheat announcements in 2016 so
this is unusual activity," Mr Lardy said.
"Most analysts are thinking this could be business to China
as they have been taking a variety of wheats from the US in recent weeks"
This may all have been a reaction to the stronger renminbi, whose spike higher late last
week (now largely reversed) was the talk of markets.
But ideas of strong demand were not supported by prices in
China itself, where Dalian soybeans for May, the best-traded contract, settled
down 1.0% at 4,185 yuan a tonne.
Nor, elsewhere in the oilseeds complex, was Malaysian palm oil data ostensibly helpful in
showing the country's stocks of the vegetable oil last month at 1.665m tonnes –
rising marginally month on month, rather than showing the drop to 1.607m tonnes
that investors had expected.
Still, palm oil futures stood in positive territory
nonetheless, up 0.1% at 3,116 ringgit a tonne, helped by data from cargo
surveyor ITS showing a strong start to 2017 for Malaysian exports, with volumes
up 8.1% month on month so far.