Are investors switching back to commodities from shares?
OK, commodities overall didn't fare that well on Monday,
with the CRB index up 0.1%.
But that was, nonetheless, better than shares managed,
standing 2.0% down in Wall Street in late deals, after closing down 0.7% in London,
by 1.4% in Paris and 1.8% in Frankfurt, after a disappointing survey of US
manufacturing activity from the Institute of Supply Management followed weak
data from China reported earlier.
The ISM's headline index dropped to an eight-month low of
51.3 in January, from 56.5 in December, while the new orders sub-index plunged
from 64.4 to 51.2, the biggest monthly decline since 1980.
And many agricultural commodities fared far better still –
notably arabica coffee, which soared
8.5% to close at 135.95 cent a pound in New York for March delivery, the
highest finish for a spot contract in eight months and the best one-day gain in
The gains reflected concerns over dryness and heat in Brazil
reported elsewhere on Agrimoney.com, including a caution that it is not just
the 2014 crop that stands to be affected by the conditions, but next year's
harvest too, with the vegetation needed for flowering come September off to a
It helped that hedge funds were caught leaning the wrong
way, in market parlance, having raised their net short position to 5,454 lots as
of last Tuesday, with gross shorts – requiring buying coffee to close - at more
than 43,000 lots.
In London, robusta
coffee got a lift too, adding 3.4% to $1,839 a tonne for May delivery, a
five-month closing high for a nearest-but-one contract.
On another day, raw
sugar might have been expected to post strong gains too, with Brazil's cane
growing Centre South region also being at the epicentre of dryness concerns, as
MDA pointed out.
Furthermore, hedge funds are even more bearishly positioned
in raw sugar than in arabica coffee, with a net short of more than 58,000
And there are some other reasons to be bullish on the
sweetener, as Marex Spectron revealed.
Still, cane is viewed as a resilient plant, and arguably
more of the Sao Paulo crop is irrigated than the coffee plantations in
neighbouring Minas Gerais.
Raw sugar for March managed gains, but not such explosive
ones, ending 1.2% higher at 15.74 cents a pound, with a fresh decline in Brazil's
real, down 1.1% against the dollar, also adding some pressure.
"The correlation between sugar and the Brazilian real had
been uncanny" until recently, Marex said.
But will Brazil's dryness prove negative for soybeans too, of which the country is
the top exporter, and potentially biggest producer as well?
Opinion is mixed on that one. For some, the dryness will
actually only help farmers, by allowing a speedy harvest.
"It has turned warm and dry in Brazil, but it is primarily
in the areas that are already harvesting," Darrell Holaday at Country Futures
"Remember, Brazilian soybean harvest fought rain last year
Farm research group Imea said that while the harvest in Mato
Grosso, Brazil's top producing state, is 10.6% complete, down from 11.4% a year
ago, that reflects a bigger crop.
… or bad news?
However, consultancy AgRural was not so certain, saying that
dryness might prompt it to cut its forecast for Brazil's soybean harvest.
And, as an extra support to prices, yet again the dog of
Chinese cancellations of US orders, in favour of South American ones, didn't bark.
Sure weekly US exports, as measured by cargo inspections,
were well down last week from the previous week's 74.0m bushels.
But the 45.5m bushels reported is "still a decent number",
Mr Holaday said.
Furthermore, the soy complex received some support from a strong
performance by soymeal, which for March delivery soared 1.9% to $434.00 a short
ton in Chicago, lifted by the impact of cold weather in hampering US deliveries
of the feed ingredient.
Soybeans themselves for March ended 0.8% higher at $12.92 ¾ a
bushel, falling back after earlier coming 0.25 cents from the important $13.00-a-bushel
market, but at least retaking its 20-day, 75-day and 100-day moving averages.
For corn, the weekly
US export inspection data was less impressive, at 21.6m bushels, down from
29.0m bushels the week before.
US cattle herd data out late on Friday was a little negative
too, showing the herd at a 63-year low of 87.73m head, down 2% year on year,
down more than the 1.4% investors had expected, and implying lesser demand for
livestock feed from this quarter.
However, it benefitted from talk that the Environmental
Protection Agency may delay until summer revisions to the US ethanol mandate which have been seen as
working against output, and thereby demand for corn.
Ethanol itself for March gained 0.8% to $1.839 a gallon.
Struggle for supplies
And then there was the US cold to factor in here too, with fresh
cold and snow forecast for this week.
"The winter weather
in the US has grain movement extremely limited and is supporting nearby prices,"
CHS Hedging said.
Darrell Holaday said: "Cash markets are struggling to get
their hands on physical product because of weather conditions in the Plains and
"Of course, that situation is going to deteriorate through
the week with two systems moving through those areas this week."
Corn for March added 0.4% to $4.35 ¾ a bushel.
'Snow cover has begun
Wheat did even
better, gaining 1.4% to $5.63 ¾ a bushel in Chicago for March delivery, even though
the cold might not be such bad news as it might appear.
"Snow cover has begun to build across the north central and
southern Plains and Midwest, and should build further across the central Plains
and central Midwest this week," MDA said.
"The increase in snow cover will continue to build
winterkill protection for wheat as temperatures remain cold."
Furthermore, it will boost soil moisture too, "and will be
most beneficial in the Plains", the weather service said.
'Plenty of demand
CHS issued a somewhat neutral view of wheat too.
"There seems to be plenty of world demand surfacing for
wheat, and US values remain competitive," the broker said.
"On the other hand, world wheat stocks are also plentiful at
However, there was an idea that hedge funds, having already
been caught out in coffee, were keen to take profits on their lofty net short
position in Chicago wheat while it was still there.
There were some positive signs to encourage short-covering ,
with Benson Quinn Commodities noting that "basis levels remain firm in the
wheat markets and recent price action in the spreads has also been a positive
In London, wheat for May closed up 0.9% at £152.75 a tonne,
but Paris wheat for March closed 0.3% down at E192.00 a tonne.