PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 20:25 GMT, Monday, 10th Mar 2014, by Agrimoney.com
Evening markets: Brazil boosts coffee. But China sinks soy

Coffee and sugar retained their appeal to investors. But grains and soybeans sure struggled.

Arabica coffee soared 3.3% to 203.40 cents a pound in New York for May delivery, after earlier touching 206.85 cents a pound, the best for a nearest-but-one contract since February 2012, amid ideas that rainfall over the weekend in the Brazil coffee belt was less than generous, and with little hope of much more for now.

Brazilian weather group Somar said that the weekend was marked by "low cumulative rainfall and higher temperatures" in most coffee-producing areas, while the departure of a cold front looked like meaning "decreasing" rainfall ahead.

In the US, MDA said that "significantly dryness continues" in central Minas Gerais, the top coffee-growing state, besides east central Sao Paulo, the neighbouring state which is Brazil's top grower of sugar cane.

As an extra boost, data late on Friday revealed that hedge funds had increased only by a small amount their net long position in arabica coffee futures and options, by just 6 contracts to 27,872 lots, still well below historic highs and signalling scope for further long positions.

Extreme net long positions question whether further buyers remain to come in and prop up prices further.

Sugar revival

In New York raw sugar, there was some concern over a hike of nearly 43,000 contracts week on week in the managed money net long, more than some investors had expected, and prompting some

"The increase… and rain arriving in Centre South Brazil sugar areas over the weekend was enough to prompt some early selling this morning on the opening in New York," Nick Penney, senior trader at Sucden Financial said.

But with the rainfall emerging as ungenerous, and the dry outlook for some areas, raw sugar for May closed up 1.2% at 18.22 cents a pound, albeit still below last week's highs.

(The managed money net long in raw sugar topped 200,000 contracts in October, by the way, suggesting plenty of scope for further buying if funds further get the bullish bit between their teeth.)

Inventory revisions

Also among soft commodities, cotton managed a higher close, up 0.3% at 91.56 cents a pound for May delivery, among the highest closing levels for a nearest-but-one contract of the last two years.

The US Department of Agriculture, in its monthly Wasde crop report, nudged higher by 320,000 bales to 96.8m bales its forecast for world cotton stocks at the close of 2013-14, a reflection of dimmer hopes for Chinese and Pakistani consumption.

"China's consumption is lowered 500,000 bales based on increasing concentrations of domestic supply in the national reserve and continued growth in cotton yarn imports," the USDA said.

"Pakistan's consumption also is lowered 500,000 bales, as sluggish imports indicate lower use.

But the forecast for US stocks was cut by 200,000 bales to 2.8m bales, reflecting an improved hope for exports, and supportive for prices.

Soybeans slump

The Wasde might, on the face of it, have been expected to have proved supportive for row crops, in cutting the estimates for US corn and soybean stocks at the close of 2013-14.

Corn stocks were downgraded to below market expectations, and although the soybean figure was a touch above, it still represented the tightest, compared with use, for 48 years.

But all the data appeared to do was turn a downbeat session into something of a rout, with soybeans for May slumping 2.7% to $14.18 ¾ a bushel.

The contract fell temporarily below its 10-day moving average for the first time in more than a month.

Already dialled in

One trouble was the high expectation for the report, in terms of providing bullish news, sentiment evident in the large hedge fund bets on higher prices.

"When you have run up as much as we have in all of these markets, it is difficult for a [Wasde] report to provide the bullish numbers needed to sustain strength," Darrell Holaday at Country Futures said.

However, there was also the problem of Chinese cancellations of import orders which, even if not evident in orders from the US, are rumoured to be affecting purchases from Brazil.

The tumble overnight in soybeans on China's Dalian exchange, where the best-traded September contract settled down 2.3% at 4,367 remninbi a tonne, added weight to such talk.

Negative margins

 "China has reported washed out of 18 cargoes of Brazilian soybeans, and is reportedly looking to wash out of 20-25 more," Mr Holaday said.

"This is a problem for the soybean complex as it reflects the backlog of soybeans in China."

Indeed, Chinese soybean crush margins have tumbled from a positive $150 a tonne in October to a negative $30 a tonne or so, according to Morgan Stanley.

Benson Quinn Commodities said that "it appears China may have cancelled as many as 15 cargos. Chinese port supplies are ample, while crush margins are negative."

US Commodities noted rumours of "10-15 vessels cancelled in South America by China".

'More difficult to cancel'

It was noteworthy that orders of Brazilian, rather than US, soybeans are being ditched.

"China bought a lot of US soybeans delivered (CIF), which makes them much more difficult to cancel," Mr Holaday said.

The cancellations will have a knock on effect on the US in freeing up supplies for other buyers, but Benson Quinn Commodities noted some reason not to panic just yet.

"Brazilian basis levels weakened on the news, but the spread between Brazilian and US values has not reached levels that would indicate the pace of US imports from Brazil increasing," the broker said.

Corn vs soybeans

Corn dropped heavily too, by 2.2% to $4.78 ¼ a bushel, although not by quite enough to sacrifice the contract its hard-won 200-day moving average, regained last week.

Besides the broader "buy the rumour, sell the fact" thinking, the grain may tend to take more notice of soybeans for a while, given the imminent spring planting period, in which the two crops compete strongly for area (and with cotton a bit too).

This theme will come sharply into focus on March 31, with the release of a key US report on prospective plantings.

The soybean: corn ratio, on a November: December futures basis, actually closed at 2.46: 1, firmly encouraging plantings of the oilseed over corn.

'Great deal of risk premium'

Wheat, while initially resilient, lost ground too, ending down 2.0% at $6.40 ¾ a bushel in Chicago for May delivery.

In fact, the Wasde produced few changes for wheat. And among these changes was an upgrade to the forecast for Russian exports in 2013-14, by 1.0m tonnes to 17.5m tonnes, rather than showing any hint of concern at any fallout on trade from the Ukraine crisis.

In fact, "a great deal of risk premium is now in the market on the Russia/Ukraine situation" US Commodities said.

But without fresh signs of Ukraine unrest, investors were reluctant to add any more.

In Paris, the May contract fell in sympathy, by 1.4% to E207.00 a tonne, despite an upgrade by the USDA to its estimate for European Union exports, by 1.5m tonnes to a record 29.0m tonnes.

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