Evening markets: bears regain advantage. Corn, coffee suffer

Bears, after being bruised heading into the weekend, emerged from it in full force, sending grain and coffee markets back into reverse.

Losses were steepest in arabica coffee, which tumbled 3.9% to 165.35 cents a pound for July delivery, reversing all the last session's gains, on a downbeat estimate for Brazil's crop, and removing a bit more premium too.

Indeed, the close gave the contract to its lowest finish in getting on for four months, with selling pressure really kicking in after the lot failed once again to get to its 10-day moving average, and exacerbated by a failure of the 170 cents-a-pound mark which had been seen as a likely chart support point.

'Prevailing uncertainty'

Fundamentally, the market was not helped by the move late on Friday by Kraft, owner of brands such as Maxwell House, to raise retail prices on most coffee products by some 10%, following a similar move by rival Smucker last week.

Higher prices are likely to quell demand.

Still, the International Coffee Organization reminded that it ain't all over until the Brazilian harvest results are in, ending the huge uncertainty over how much the country's crop sustained from drought early this year.

"The prevailing uncertainty surrounding the damage to the Brazilian crop presently being harvested will last for at least another month, and with it the higher than usual [price] volatility," the ICO said.

The organisation itself, "until more information is available", stuck by an estimate for Brazilian production of 44.6m bags, in line with that of the country's official Conab bureau.

Go slow on sales

London robusta coffee fell a more modest 1.3% to $1,883 a tonne for July delivery, amid concerns over weather in Vietnam, the top producer of this variety, and over ideas of a reluctance among producers to sell.

Coffee merchant Volcafe said that Vietnamese prices had gone from a discount of some $40 a tonne to London futures to a premium of the same amount in a week, as "producers and agents continue to halt sales into the declining market".

Meanwhile, in Indonesia, the third biggest robusta producer, "farmers continue drying and hold on to the coffee for Ramadan and Hari Raya".

Corn futures drop

In grain markets, corn was a notable loser, tumbling 1.7% to $4.51 a bushel in Chicago for July delivery and by the same to $4.50 a bushel for the new crop December lot.

There was one hope of support for prices in decent US exports last week, as measured by cargo inspections, at 1.15m tonnes, up from 980,000 tonnes the week before, and ahead of expectations.

But that was one of the few straws that bulls could clutch at, with bears holding a series of cards including the potential for an export downgrade when the US Department of Agriculture on Wednesday reveals its latest monthly Wasde crop report.

A soft US export performance in mid-May has prompted ideas of a downgrade to the forecasts for US exports in 2013-14.

China ban

And export ideas were hardly improved by talk that China has barred imports of US distillers' grains (DDGs), the feed ingredient manufactured as a byproduct of corn ethanol output, for fears over contamination with Syngenta's MIR-162 variety.

MIR-162 corn, a genetically modified variety, has been approved in Washington but not in Beijing, and claims of traces of the strain have led to a series of rejections of US corn cargoes, with less concerns until now over DDGs.

Meanwhile, ideas of new crop exports are a little lukewarm.

"There continues to be a lot of talk in the industry that the US offers to sell corn overseas in the fourth quarter of 2014 and first quarter of 2015 are not getting much response as buyers have filled up inventory," Darrell Holaday at Country Futures said.

And for what demand there is, importers "are much more interested in offers from South America or the Black Sea region".

'Phenomenal prospects'

All this is before getting to the production side, and the passing of forecast of a mid-June hot and dry spell which helped buoy prices in the last session.

As an extra boost to US crop prospects, the USDA is expected later on Monday to lift by some 3-4 points, to 79-80%, its estimate of the corn rated "good" or "excellent" an unusually high reading.

"South Dakota crops look great, while North Dakota corn is rated well above average following prompt and uniform germination," said Richard Feltes at broker RJ O'Brien.

One scout in the north eastern Midwest "characterises corn prospects as 'phenomenal'".

'A lot of spread trading'

Corn's fall actually provided a benefit for soybeans, with plenty of short corn-long soybean bets going on or being reversed.

"There is a lot of spread trading between corn and soybeans," said Darrell Holaday at Country Futures.

"Corn was making new lows when the soybean rally occurred, but when the soybeans broke from their highs, the corn came off of its lows."

And, as an extra support, weekly US exports were strong, at 123,115 tonnes.

OK, that was down from the 118,254 tonnes the week before, but enough to take the US total so far in 2013-14 to 42.2m tonnes.

That is not far short of the 43.55m tonnes the USDA has forecast for the whole season, with some three months still to go.


Still, one big negative was that the USDA is expected later on Monday to reveal a strong rating for the condition of the US crop, of perhaps 70% good or excellent, compared with 64% last year.

"The market seems overwhelmingly confident that those should be better than average for this time of year," CHS Hedging said.

At Citigroup, Sterling Smith added that "weather continues to be a large negative for new crop and any strength there should see hedge pressure contain the upside".

Still, new crop November soybeans actually did better than old the crop July contract, gaining 0.5% to $12.24 a bushel, helped by spreading with corn.

The July lot closed unchanged at $14.57 a bushel.

'Concern over crop quality'

Where weak corn was not helpful was in fellow grain wheat, offsetting the impact of lingering concerns over harvest rains impairing the quality of the southern US Plains hard red winter wheat crop currently being harvested.

"US hard red winter wheat country will receive periods of rain through the next full week with central and northern areas wettest," World Weather said.

"Additional concern over crop quality may occur, although rainfall will not be as heavy as that of the weekend."

Weekly US exports were OK, at 518,866 tonnes.

'Dryness relief expected'

But there was some easing in fears over dryness in Russia.

"Russia's dry region in the Volga River Basin will receive scattered showers of light intensity multiple times this week," World Weather said.

"Dryness relief is expected, although it will be brief," and a "general soaking of rain is still needed".

And, with pressure from corn, wheat for July fell 0.9% to $6.12 a bushel in Chicago for July delivery, although that did not reverse all the gains of the last session.

Kansas City hard red winter wheat for July eased a modest 0.5 cents to $7.35 a bushel.

Morning markets: wheat extends rally but corn rebound stalls
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