If the fund rebalancing exercise was having any impact on
crop markets on its first day, it was hard to detect.
Raw sugar, which Morgan
Stanley fingered as a major beneficiary of the annual revamp of index fund portfolios to match base index weightings, did rise, but only by 0.01 cents to
18.86 cents a pound in New York, for March delivery.
Meanwhile, Chicago wheat,
seen as a loser of the rebalancing process, was lower, but by only 0.1% to
$7.46 a bushel for March, while Kansas wheat, viewed a winner of the index fund
rejig, also fell by 0.1%, to $8.03 ¼ a bushel, also for the March contract as
of 19:40 UK time (13:40 Chicago time).
Sure, March soymeal,
identified with sugar as a winner of the reweightings, did rise strongly by
1.6% to $405.40 a short ton.
But March soybeans
were not far behind, adding 1.2% to $13.84 a bushel. And they were meant to be
suffering a sell-down by index finds of $2.0bn, according to Morgan Stanley.
As Morgan Stanley cautioned, "the price impact of
rebalancing is murky", given that other investors have so long to prepare and
position for it.
Benson Quinn Commodities said that with liquidation so heavy
in the run-up to the process, "with rebalances weighted by price, selling may
be less than originally estimated in November with board prices now well below
those earlier levels".
So what was keeping prices, generally, positive, even as
many external markets, such as shares, flagged, hurt by the impact of new regulations
One help was the dollar,
which fell back 0.3% as expectations of the US withdrawing easy monetary policy
waned. A weaker greenback makes dollar-denominated
assets, including many commodities, more affordable as exports.
But so was the prospect of a big report, in fact a series of
big reports, from the US Department of Agriculture on Friday, including the
flagship Wasde briefing on world crop supply and demand.
Caution over what the reports will bring prompted some covering of the short positions that speculators have been putting on in agricultural commodities (if not selling out altogether).
"Probably the surprise is that the average trade guess for US
corn production is actually lower
than the USDA's November number of 10.725bn bushels," Darrell Holaday at
Country Futures said.
Ideas that the USDA might raise its estimate for the corn
harvest gained traction last week, especially after Informa came up with a
The market forecast instead, according to a Bloomberg
survey, of a 10.625bn-bushel stat on Friday "is surprising given the break in
prices we have seen the last three weeks", which appeared to imply investors
thought corn supplies ample.
'Now competitive with
In fact, ideas for US corn exports received a little bit of
a nudge when the USDA revealed the sale of 102,000 tonnes of the grain, to
Benson Quinn noted that "US corn values are now competitive
with Brazilian, Argentine and Ukraine offers.
"This could attract some export demand for US over the next
Market reaction was restrained by continued optimism over
South American weather conditions, showing rain coming to needy areas of
Brazil, and dryness to sodden parts of Argentina.
"The dryness in Brazil is limited to less than 10% of
growing area," Paul Georgy, president at broker Allendale, said.
Still, corn for March stood 0.5% higher at $6.83 ¾ a bushel.
'Crush margins seen positive'
doing better in part because of more positive vibes coming from China, the top
importer, whose cancellation of more than 1m tonnes in orders of US crop over
the last month has been a major downer to prices.
"Chinese Dalian traders have returned from holiday with
their markets firmer for beans in past two trading sessions," Benson Quinn
"This is offering support to US market as Chinese soybean
market did not sell off in catch-up with counterpart Chicago futures after
being closed most of last week.
"Chinese crush margins are seen positive and are offering
China also offered some support for wheat, in the coldest winter for 28 years, which the official China
National Grain and Oils Information Centre cautioned could hurt the winter
Temperatures will fall to -5 degrees Celsius (23 degrees Fahrenheit)
this week, according to the China Meteorological Administration, although it
has to be said that wheat is typically viewed as being able to survive
temperatures at that level pretty well, even without snow cover.
There is also growing speculation of European buyers turning
to US soft red winter wheat, talk which has been around in the UK, hit by a
dismal harvest last year, since the autumn.
But as for drought-hit US seedlings, the "midday GFS model
is somewhat promising in regard to precipitation in a large part of the hard
red winter wheat area later this week", Country Futures said.
"This has kept a lid on wheat rallies."
At least for bulls a series of banks, including Commerzbank and Societe Generale, voiced ideas that the price falls, especially in wheat, had gone too far already.