Have speculators overplayed their bearishness in arabica coffee and raw sugar futures?
Certainly, both ags enjoyed strong gains on Friday, turning
one, arabica coffee, into one of the biggest gainers in commodities this month.
In soaring 4.3% on the day to 125.20 cents a pound in New
York, for March delivery, arabica coffee ended January with 13.1% gains, recouping
nearly half of its losses of 2013.
Raw sugar for March added
3.7% in the session to end at 15.55 cents a pound, at least ending a poor month
on a strong note and reducing its January losses to 5.2%.
That gain also put 0.85 cents distance between the contract
and three-year lows set earlier this week.
The recoveries reflected dryness in Brazil, the top exporter
and producer of both crops, which Australia & New Zealand Bank has been
cautioning of for a while, but which finally appeared to catch investor
Rains in Brazil over the next 10 days "are expected to be
confined to far southern and north western" regions, rather than the central
coffee and cane areas, MDA said.
Indeed, "moisture shortages will increase further in north
eastern areas, especially Minas Gerais," the top coffee growing state, "and Sao
Paulo", at the core of the Centre South cane belt.
Such dryness is "unfavourable for cherry growth" on coffee
trees, the US-based weather service added.
Dry soils, or not?
And this on top of dryness already highlighted in many cane
and coffee areas.
South Minas, for instance, has received 40-50% of average
rainfall over the last two months, according to Brazilian consultancy Somar.
Not that Somar itself is too worried about the dry spell,
saying that undue wetness which concerned producers earlier had backed up soil
Still, with it being month-end too, a period which by repute
encourages investors to tidy up their positions, hedge funds were encouraged to
close some of their hefty short exposure to sugar, and their more modest such
exposure to arabica coffee.
In London, white
sugar for March closed up 3.6% at $424.00 a tonne, while robusta coffee, of which Vietnam produces
more than Brazil, gained 1.9% to $1,811 a tonne.
'No indications of
The session was broadly positive in grain markets too, albeit
not to such extremes, with soybeans
one of the better performers in gaining 0.6% to $12.82 ¾ a bushel in Chicago for
March delivery, helped by a dog that didn't bark.
US Commodities noted that "no indications of cancellations
from China" of orders of US soybeans have been reported, "despite persisting
rumours" that buyers were turning to Brazil for supplies.
Rival broker Allendale noted that the "Argentine inflation
problem is causing strong producer holding there which is slowing exports out
of those regions", as producers hoard crop as a dollar-denominated hedge
against fallout from the country's economic problems.
Not that all the South American news was so bullish, with Darrell
Holaday at Country Futures noting that "soybean values in Brazil continue to
"The difference between US values at the port Brazilian
values is very close to making it profitable to import soybeans into the US.
"That provides the near-term cap in US soybean values."
Still, soybeans were underpinned by a resolute performance
by soymeal, which gained 0.2% to
$426.10 a short ton for March delivery, despite Cargill's announcement that it
was to idle a North Carolina plant in the spring because of a seasonal slowdown
expected in US demand.
North Carolina on the east coast is an area where livestock
feeders have easy access to foreign supplies.
'Buyers going to US'
Export news was a help to Chicago corn too, in that the political unrest in Ukraine is encouraging
buyers to return to US supplies, which are pretty competitive anyway, before
shipping costs are factored in.
"Economic and civil unrest in Ukraine has caused world
buyers to come to US for purchases of corn," Paul Georgy at Allendale said,
noting strong US weekly export sales data released on Thursday.
The US announced today the sale of another 110,000 tonnes of
corn to Spain.
And this demand is coming as, as CHS said, "movement off the
farm remains light due to cold/wintery weather and the lowest prices of the
last three-to-four years."
Corn for March nudged 0.1% higher to $4.34 a bushel.
While not a big leap, it was technically important in giving
the contract its first close over its 50-day moving average in eight months.
Wheat managed an
even smaller gain, by 0.25 cents to $5.55 ¾ a bushel for March delivery, nowhere
near enough to get any many moving averages under its belt.
Any urge by speculators to cover short positions was
curtailed by a dearth of export news, and an upgrade by the International Grains
Council to its forecast for the world harvest in 2014-15, thanks to good
northern hemisphere conditions – so far.
Minneapolis-traded hard red winter spring wheat did signally
better, rising 1.1% for March delivery to $6.04 a bushel, helped by weather
upsets to transport, which are hampering the release of Canada's huge spring wheat
crop onto the world market.
"Rail logistics remain an enormous struggle for both
domestic and export purchasers," CHS said, adding that "US hard red winter
spring wheat export sales have been the beneficiaries of Canada's logistical
Paris wheat for March added 1.2% to E192.50 a tonne, helped
by weakness in the euro, which improves the competitiveness of exports from
eurozone countries such as France.