PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 20:16 GMT, Monday, 24th Mar 2014, by Agrimoney.com
Evening markets: coffee rebounds. Wheat rises even further

Agricultural commodities returned to funds' good books on Monday, with quite some effect.

Even arabica coffee, well out of sorts last week, which showed the biggest weekly loss since 1999, managed a bounce.

New York's May contract soared 3.1% to 176.40 cents per pound, nearly 10 cents above its intraday low, well into negative territory, as investors wondered whether last week's 13% tumble, on rains in drought-hit Brazil, was an overreaction, given that a stack of damage has already been done.

Some commentators feel that the rain has done more to help next year's Brazilian crop than this one, given that 2015 cherries will be borne on vegetation grown this year, and which has still some time to recover before flowering, around September.

Although the Colombian Coffee Federation at the weekend lifted its forecast for the Colombian coffee crop to 11.4m bags, up 500,000 bags year on year, that only represented an upgrade of 100,000 bags.

'Headlines of rains'

Raw sugar managed only a small bounce, of 0.01 cents to 16.84 cents a pound in New York for May delivery, although this minimal gain was enough to put the contract to the topside of its 100-day moving average, which it closed the last session exactly on.

In fact, rains in Brazil may have some positive implications for sugar prices, in causing logistical upsets at the start of the 2014-15 cane harvest.

"We have headlines of rains predicted for Brazil in April and we must not forget in recent years rains around the start of the Brazil season have helped cause incredible front month switch volatility, as the rains hampered harvest/logistics/shipping line-ups," Sucden Financial said.

Marex Spectron confirmed that while "this week is expected to be one of patchy rains, there are some forecasters talking about heavy rains in May-June when the harvest will be getting into full swing".

'Fund money streaming in'

Still, grains especially proved appealing to funds on Monday, when Chicago wheat for May closed up 3.1% at $7.14 a bushel.

Kansas City hard red winter wheat for May managed a slightly smaller gain, of 2.9%, but in ending at $7.93 a bushel managed the highest close for a spot contract in 10 months.

"Fund money has come streaming into the grain markets again today," Darrell Holaday at Country Futures said.

There was some disagreement over whether US dryness or Ukraine concerns were the bigger force behind the rally, with jitters growing over the condition of US winter wheat seedlings, and more (incomplete) US Department of Agriculture crop condition data due out later on Monday.

'Significantly drier'

"The GFS model over the weekend became significantly drier in the southern Plains for next week. That has prompted a lot wheat buying," Mr Holaday said.

Broker Benson Quinn Commodities said that "the moisture situation in the southern Plains continues to offer support to wheat markets that have a tendency to get overbought.

"Current weather models offer limited moisture and warmer temperatures than those forecasted last week."

"The dryness in the southern Plains is certainly giving some support," Don Roose, president of US Commodities said.

'Tension in Ukraine'

However, "the Black Sea situation is at the back of people's minds", Mr Roose added.

Mr Holaday reckoned that "the tension in Ukraine is probably causing most of the buying today," highlighting moves to remove Russia from the G8 group of leading industrialised nations.

"The concern is that this may antagonise Vladimir Putin, the Russian president, who has armed troops on the amassed along the Ukrainian border."

Besides, there is the threat to Ukraine exports not just from Russia's annexation of Crimea, but its control of waterways to one major port and one significant one in the east of the Ukraine, as SovEcon pointed out.

That may cause a "bottleneck" at the remaining ports, in the west of Ukraine, where, for instance, Odessa is situated.

And SovEcon also flagged rising Russian wheat prices too, reducing their competitiveness, which was placed somewhat into question last week at the latest tender by Egypt's Gasc grain authority.

'Need some rain'

The tone from other countries where weather is a concern was mixed.

Rains are refreshing dry areas of eastern Australia, just ahead of sowings.

In the European Union, the European Commission's Mars agricultural division cautioned that the "Czech Republic, south eastern Germany, Bulgaria, Ukraine and Turkey experienced one of the driest winter seasons on record.

"These regions will now need some rain to ensure that soil moisture levels are not depleted too quickly as the water requirements of winter crops increase, and to ensure the emergence of spring crops."

However, Mars estimated the EU soft wheat yield at 5.71 tonnes per hectare this year, down from last year's 5.82 tonnes per hectare, but above the average of at 5.57 tonnes per hectare.

One barrier to another

Indeed, Macquarie was ambivalent about the prospects of the wheat rally continuing, citing that in terms of the weather premium at least, enough seemed to be baked into prices right now.

And Paris wheat, while rising, was relatively modest in its gains, adding 1.4% to E210.75 a tonne for May delivery.

London wheat for May added 0.9% to £169.75 a tonne, the highest close for a spot contract in eight months, while the better traded November contract gained 1.0% to £161.55 a tonne, but still not impressing all commentators.

"The London November wheat contract did break through the £160-a-tonne barrier" last week, "but only seems to have established another level of resistance a couple of pounds higher," traders at a major European commodities house said.

'Marketing-year high'

Back in Chicago, corn rose too, jumping 2.4% to $4.90 a bushel for May delivery, a six-month closing high for a spot contract, in part helped by fellow grain wheat, but with its own merits kicking in too.

"Weekly US export inspections satisfied expectations with corn reported a marketing-year high of 45m bushels," CHS Hedging said, a figure which took the sting out of negative talk that China has rejected another US cargo thanks to traces of an genetically modified variety unapproved in Beijing.

Ukraine is of course a big exporter of corn, the third ranked.

And US weather is increasingly an issue for corn too, with the sowing window opening in southern areas, but ground still cold further north.

As an extra support, ethanol prices soared, rising 4.9% to $2.988 a gallon in Chicago, for April delivery, and earlier hitting $3.024 a gallon, the highest for a spot contract since July 2011.

Prices of the biofuel have been helped by weak US inventory levels.

'Brazilian soybeans headed for the US'

Soybeans for May rose too, by 1.2% to $14.25 a bushel, overcoming talk of US imports from South America on the agenda, an indication of the altitude of US prices.

"The first cargo of Brazilian soybeans headed for the US left Brazil this weekend. The question is how many will there be in the total," Darrell Holaday said.

US Commodities said that "the first Brazil soybean vessel is on its way to the US.

"Rumours have 10-12 more to follow," not surprising given that "Brazil soybeans are $1.33 a bushel cheaper than US soybeans port to port".

'Tough situation to handicap'

However, one factor in their favour was chatter that a meeting of Chinese soybean processors at the weekend decided to stand by import commitments, eroding a big question mark over orders from the US, which many have considered are in for a stack of cancellations.

"There has been talk that some Chinese crushers are downplaying the idea of defaulting on US soybean purchases," Benson Quinn Commodities said.

"This is a tough situation to handicap, but rumours of this likely offered support" to prices.

At RJ O'Brien, Richard Feltes highlighted "trade talk that Chinese soy crushers at a weekend meeting agreed to honour their existing soy purchase contracts".

Besides, Feng Yonghui, general manager of Beijing-based Soozhu.com, said that an oversupply of hogs in China, big eaters of soymeal, may continue because some farmers in the biggest pork producing nation have been slow to reduce their herds.

'All key states showed increases'

Corn and soybean pits are also looking at each other a bit closer at this time of year, given the forthcoming US "battle for acres", with the two crops competitors in spring sowings plans.

Informa Economics is expected on Tuesday to revise its estimates for US sowings, and Farm Futures has pegged soybean sowings at a record 82.93m acres, with corn area seen at 92.06m acres.

"All key states showed increases [in prospective soybean area], with some of the biggest shifts possible in Illinois, where farmers pushed corn-on-corn in recent years to capture profits from the ethanol boom," the magazine said.

Official data are due on Monday.

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