PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 20:41 GMT, Wednesday, 29th Jan 2014, by Agrimoney.com
Evening markets: sugar, wheat futures hit three-year lows

Central bank news was the focus for many markets, but holidays were on the mind of agricultural commodity investors.

The US Federal Reserve said it would cut its monthly asset purchase programme central to its (less) easy monetary policy by a further $10bn, to $65bn, from next month.

And the Reserve Bank of South Africa became the latest developing country central bank to tighten its own monetary policy, raising benchmark interest rate for the first time in six years, by 0.5 points.

This following the move on Tuesday by Turkey's central bank to hike three funding rates by 4.25-5.50 percentage points, while India's central bank increased rates by 0.25 percentage points.

Mixed price moves

Whatever central bankers were trying to achieve, many markets were not too reassured, with shares falling in Europe, by 0.8% in Frankfurt, and matching that decline on Wall Street in late deals, after rises on Asian markets overnight.

South Africa's rand dropped 2%.

Commodities, as measured by the CRB index, actually rose 0.8%, looking set for the highest close in three months, although they were a mixed bunch.

While the likes of Brent crude and gold managed headway, many agricultural commodities had a miserable session, undermined in part by concerns over China's forthcoming new year holidays.

'Not positive for prices'

That will take the world's biggest importer of the likes of soybeans offline for a week at a particularly crucial time for the oilseed's investors, given that they have long been concerned that Chinese buyers are about to switch orders to South America, now that Brazil's harvest is ramping up.

"The lunar new year is upon us and Asian demand will likely be light," Benson Quinn Commodities said.

At Kansas-based Country Futures, Darrell Holaday said: "The market continues to banter around rumours of Chinese purchase cancellations and optional origin movements.

"That is certainly not positive for prices."

'Weather markets over'

Besides, ideas of Brazilian supplies, South America's first to hit export markets, are only getting bigger, with US Department of Agriculture staff in Buenos Aires overnight raising their harvest forecast to 89.5m tonnes, 500,000 tonnes above the department's official guess.

Sure, prospects for Argentine exports are less certain, given the potential for farmers to keep on hoarding crop until the country's currency finds a credible floor.

But investors are "gradually seeing the South American weather premium come out of this market as the conditions continue to be good and the weather models continue to point to very timely moisture and very good conditions in the next two weeks", Mr Holaday said.

"That puts us into mid-February with very little time for a major production issue to appear."

Paul Georgy, president at Chicago-based Allendale said: "The weather markets in South America are basically over for the season."

Bird flu concern

It actually looks like China has already started its import deliveries from Brazil.

"Brazil has loaded its first panamax soybean vessel from the port of Paranagua destined for China," CHS Hedging said.

And how much will China want anyway?

"There is concern that weakening soybean crush margins in China may lead to less Chinese imports into the spring/early summer," CHS said.

Country Futures' Darrell Holaday said: "An additional Chinese concern is that the bird flu issue has become much more severe and there is more anticipation that the Chinese will slow their purchase of soybeans because of this situation."

Soybeans for March closed down 1.3% at $12.69 a bushel in Chicago, closing below its 200-day moving average for only the fifth time in two months, after already surrendering a host of other major moving averages.

Export competition

The fears for China added a little to wheat's woes too, given that the country had been rumoured last week to be in the market for exploiting prices at their lowest in Chicago in more than three years, but with no confirmation of any orders since.

Chinese buyers look justified in holding out for a bigger bargain, given that wheat slumped 2.6% to $5.51 a bushel in Chicago for March delivery, the lowest close for a spot contract since July 2010.

And while there has been hope of more orders from Egypt, after their buying spree of more than 1m tonnes already this month, the world's top wheat-importing country said it had enough to last until mid-May nearly four months ahead.

And even if Egypt did tender, would US supplies win?

"US wheat offers are typically competitive, but never alone on the high profile tenders," Benson Quinn Commodities said.

'Bias remains downward'

Indeed, there "hasn't been enough evidence of increased demand for US supplies to stem the current trend", the Minneapolis-based broker added.

"An increase in Latin American demand would serve these markets well."

In fact, there is Latin American demand but going for now to origin not helpful to Chicago prices.

"Shipping reports show that wheat cargos are leaving Argentina destined for Brazil," CHS said.

'Cancelled sales'

Meanwhile, there is talk that some wheat orders made are being ditched as buyers assess the extent of the drop in wheat prices - down nearly 20% in Chicago over the last three months.

"Cancelled sales pulled demand out of the market this morning," CHS said.

The broker added that while wheat "continues to look oversold, until rallies can be sustained the bias remains downward".

As an extra downer, rain looks like dampening the east coast of Australia, where a lack of moisture has been raising some, initial, concerns over winter wheat sowings ahead.

Wheat closed down 1.4% at E190.00 a tonne in Paris for March delivery, with London wheat for March falling 1.2% to 150.25 a tonne, having set a contract low of 150.05 a tonne earlier.

'Cheapest in the world'

Where export dynamics were more supportive was for corn, with US supplies looking competitive on the world stage.

"US corn is becoming the cheapest in the world, just above Ukraine," US Commodities said, adding that US export (CIF) basis levels "moved above $0.80 a bushel, a positive signal, showing demand is robust".

CHS said: "Optimism for additional export business of US corn continues as South America is currently not competitive in the world market and Ukraine deals with political uncertainty."

Corn vs wheat vs oats

Not that corn, which had softish weekly US ethanol production data to tackle, besides the slump in rival grain wheat, could close higher.

But at least its decline was limited to 1.0%, leaving it at $4.27 a bushel for March, comfortably above its own three-year low, and knocking a further $0.10 a bushel off its discount to wheat.

That said, it closed only 6.25 cents a bushel above oats, which for March soared 1.1% to $4.21 a bushel, the highest finish for a spot contract in nigh on eight months.

Prices are being boosted by logistical concerns, with rail snafus and cold hampering the transport of Canadian supplies south, at a time of thin US supplies.

Three-year low 

For soft commodities, further weakness in Brazil's real, which hit a five-month low against the dollar, boded ill for values of ags in which the South American country is a big force.

And, indeed, raw sugar for March settled down 1.9% at 14.74 cents a pound in New York, the weakest finish for a spot contract in more than three years, depressed by ideas of ample supplies, and with little sign of a force which can question that for now.

"Sugar is at its lowest price since June 2010, and there is little to suggest any fundamental turnaround given that a fourth consecutive surplus is expected for 2013-14," Commerzbank said.

"The currently weak state of currencies in a number of key sugar-supplying countries, above all the Brazilian real, is additionally dampening the price level."

'Market is oversold'

Sucden Financial said that "it is still the case that the market is oversold".

While that means that "a near-term correction is possible", it would be "only on a technical basis.

"There is still little fundamental news to support a bullish argument."

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