The new year began where 2013 left off.
Remnants of festive spirit were torn from agricultural
commodity investors in a session which witnessed slumps of more than 2% in cocoa and in Chicago soymeal futures, and of more than 4% in
London-traded robusta coffee.
"It is a new year but the story hasn't changed," broker US
Agricultural commodities after all lost 7.7%, in simple
average terms, last year, which headed to a close with the longest unbroken run
on record of bearish positioning by hedge funds.
OK, some weakness was to be expected with the dollar gaining 0.5% amid growing ideas that
the Federal Reserve will steadily reduce its monthly asset purchases this year,
A stronger dollar undermines prices of dollar-denominated
commodities by making them less affordable to buyers in other currencies.
But it was a surprise that even cocoa was caught in the cross fire, being tipped by many brokers as
the agricultural commodity most likely to gain this year, with the likes of
Rabobank already forecasting a third successive season of production deficit in
Cocoa futures for March tumbled 2.7% to $2,363 a tonne in
New York, closing below its 200-day moving average for the first time since
It was the same for London's May lot in ending down 2.8% at
£1,678 a tonne.
Indeed, technical factors were part of the issue for cocoa,
in encouraging profit-taking after a relatively strong performance last year,
with price gains of 21% on both sides of the Atlantic.
But strong arrivals of beans at ports in Ivory Coast, the
top producing country, also played their role. As of December 29, arrivals
since the start of 2013-14 in October had reached 868,000 tonnes, up 40% year
Not that all observers believe that this trend will
continue, with Phillip Futures forecasting that volumes will "decline
significantly after a robust start.
"The slowing down of cocoa bean deliveries will be due to the
harvested main crop being adversely affected by previous hot and dry conditions
in the Ivory Coast as well as the Harmattan," a dry regional wind, the broker
For robusta coffee,
a decline in prices had been more widely expected, given that values appear to
have been supported by an artificially imposed supply squeeze by producers in
Vietnam, the top producing country.
Eventually, a record harvest, estimated by some as high as
30m bags, will need to make it to market.
London robusta for March slumped 4.1% to close at $1,614 a
tonne, after earlier bouncing off its 50-day moving average at 1,606 a tonne.
'Market is in
The risk of a tumble in soymeal
prices had also been highlighted to Agrimoney.com readers after China rejected
some volumes of US distillers' grains
on grounds of containing some of the unapproved genetically modified corn variety
which has prompted some grain rejections too.
Distillers' grains, or DDGs, a byproduct of corn ethanol manufacture,
are an alternative source of protein to soymeal for livestock feeders. So a
failure by DDGs to reach China implies more competition for soymeal in the US
With DDG export prices falling sharply over the past week
U.S. soymeal consumption could see reductions due to increased domestic DDG feedings.
"The US DDG market is in free-fall following China's
rejection of 2,000 tons of US DDGs," Richard Feltes at broker RJ O'Brien said,
although it has to be said that other brokers report higher figures.
While this represented
"a small fraction of China's 2.8m tonnes of 2013 DDG imports, there is
mounting concern that further rejections would back up DDGs and in so doing
temper US soymeal demand".
'We expect more
At Country Futures, Darrell Holaday said: "DDG values have dropped
$27 per ton in the last week. We expect more downside in that market."
US Commodities said: "With DDG export prices falling sharply
over the past week U.S. soymeal consumption could see reductions due to
increased domestic DDG feedings.
At Jefferies Bache, Anne Frick said: "DDG prices declined
sharply after China rejected at least two, but probably more, cargoes last week
and there are thoughts that some DDGs could work back into the domestic market
competing with soymeal."
Chicago soymeal for March closed down 2.6% at $406.30 a
short ton, ending below its 100-day moving average for the first time since
'Need to extract
That weighed on soybeans, as did the decreasing concerns
over Argentine weather, now that wetter weather has replaced a hot and dry
"Conditions in South America continue to get better and the
market needs to extract weather premium out of this market," Country Futures'
Mr Holaday said.
Still, he attributed most of a price decline of 1.7% to
$12.70 a bushel, in Chicago's March contract, to technical factors, after
futures fell in the last session below critical support levels.
"That set the stage for another major sell off today, and
that has happened."
In fact, the soybean sell-off was in part a positive for corn, in being fuelled by the unwinding
of long soybean-short corn spreads.
That implies upward pressure on prices of the grain, which
spent much of the day in positive territory before ending down a relatively
small 0.4% at $4.20 ½ a bushel for March – if enough to hand the contract its
weakest close ever.
Strong prices of ethanol, which added 1.4% to $1.819 a
gallon, also helped, in boosting margins for producers of the biofuel.
Wheat prices falls
Indeed, corn did far better than wheat, which dropped 1.4% to $5.97 a bushel in Chicago for March delivery
– the first close by a spot contract below $6 a bushel since May last year.
Paris wheat for March fell 1.0% to E202.50 a tonne.
There was some bullish news around, with Taiwan Flour
Milling tendering for 54,800 tonnes of milling wheat for shipment February
21-March 7, and Algeria tendering for optional origin wheat for March shipment.
(Egypt's Gasc grain authority issued a tender too, but after
the close of markets.)
However, on the bearish side was a report by China's
agriculture ministry that the country's winter wheat crop had managed its best
growth, so far, in eight years.
That signalled the potential for a drop in imports in
2014-15 from a country whose recent purchases have been a major prop for prices.
'Protected by insulating
Meanwhile, India raised its offering of wheat from state
inventories, and looks on track for an ample harvest this year too, with
sowings expected at a record high.
And concerns seem to be waning over the threat of cold
weather to US winter wheat seedlings.
Sure, temperatures of minus 30 Fahrenheit were reported this
morning in northern Minnesota, according to Gail Martell at Martell Crop
"But winter wheat in the US breadbasket is deep in dormancy
and not subject to winter kill.
"Most of Kansas wheat is protected by insulating snow. Where
fields are bare, west Texas and Oklahoma, near-zero Fahrenheit temperatures are
not a threat to wheat that has achieved maximum hardiness."
That said, she highlighted the potential threat to Russian
wheat from a cold snap, after unusually warm weather thinned the snow blanket
over winter crops.
"The jet stream has built up a warm ridge over European
Russia, where temperatures have been 10- 14 Fahrenheit above normal this winter,"
Ms Martell said.
"Conditions in Europe also have been uncharacteristically
mild in December, but not warm enough to stimulate strong growth in winter
"Has wheat lost hardiness? If so, a sudden shift in the weather
toward bitter cold, should it occur, may cause winterkill in Russia and Ukraine."