Financial markets, like nature, abhor a vacuum, so traders
Wednesday came up with evidence to prove them right, in
seeing Chicago corn and soybean futures fill in gaps in their
charts, and fuelling a deep decline in prices in the process.
It was hardly a promising day for agricultural commodities anyway,
once a profit-warning by Caterpillar, the US construction vehicle giant, and
anti-austerity demonstrations in Greece were taken touched febrile inventor
There was Spain to factor in too, witnessing its own anti-austerity
protests, besides a central bank caution that data suggest the country's gross
domestic product contracted at a "significant rate", and Catalonia announcing a
snap election seen as raising the likelihood of secession.
sector is lower'
falling by 1.6% in London and 2.8% in Paris.
And, unhelpfully for dollar-denominated
exports such as many commodities, the greenback added 0.4% against a basket of
The average commodity, as measured by the CRB index, lost
"The riots today in Greece along with another surge in
Spanish bond yields has put the euro currency on defensive and rallied the US
dollar," Darrell Holaday at Country Futures said.
"The entire commodity sector is lower."
Long list of
It was hardly surprising that many agricultural commodities
did worse, given the range of fundamental factors encouraging funds to
liquidate large net long positions they still have in some crops, such as corn
and notably soybeans, which still remain at historically elevated prices.
"Brazil rains, US harvest pressure, fund liquidation,
outside market pressure and negative seasonal factors team up with fear of a
bearish crop report on Friday to push row crops to new lows of the move," was
how Richard Feltes at RJ O'Brien summed it up.
"There are still 10 days until the October Wasde crop report
with the void peppered by quarter end, November soybean futures fund roll,
accelerating harvest and renewed unease in the European Union.
"We don't see catalyst as yet to pick bottoms."
In other words…
To unpack those comments a bit, row crops face a background
anyway of harvest pressure – weight on prices from farmers selling off the
combine have been offering a reprieve to buyers worried about the prospect of
tight inventories following drought-hit South American and US harvests.
But adding to it are not just the external economic worries,
but rains in Brazil easing concerns that a particularly dry dry season in
central soybean areas would get sowings off to a bad start for a crop whose
harvest in early 2013 is being widely anticipated as a potential cure for weak
Furthermore, the US Department of Agriculture will at the
end of the week unveil a crop inventory briefing expected to be downbeat for
prices in revealing relatively healthy supplies as of September 1 (although the
picture will be clouded by the impact of an early harvest).
And the soybean market also faces the challenge of handling
its expiry process which, while not kicking off for another month, is expected
to see funds sell down positions in the lot well ahead, while liquidity is
'Prices are still too
Meanwhile, corn had idiosyncratic challenges too, besides more bearish comments from Societe Generale, given a continued weak US export
"Yesterday South Korea bought 133,000 metric tonnes of corn
from South America for February delivery," Steve Georgy at Allendale said.
"This is concerning for the bulls because this means our
prices are still too high."
US Commodities also noted that "South American corn remains
well under US values.
"In August, corn values were $1.00 a bushel under US values
and now $1.25 a bushel under US values. The US is not competitive on corn in
the world markets."
Over the cliff
So it was hardly surprising that markets took corn and
soybeans to the edge of their chart gaps, at around $7.32 a bushel and $15.87 a
bushel respectively on continuous charts.
And once over the precipice, there was little technically to
stop both crops falling to the bottom of their chart voids.
Chicago corn bottomed out at $7.22 ½ a bushel before edging
higher to close at $7.24 ¾ a bushel, down 2.4% on the day, and the lowest
finish for a spot contract since early July.
That is some $1.20 a bushel cheaper than the price the grain
reached at its peak last month.
Soybeans for November recovered some ground to end at $15.73
a bushel, a decline of 2.3%, and also the lowest close for a spot lot since
However, signally, that was not enough to prevent the oilseed
closing below its 100-day moving average, on a continuous chart, for only the
second time since January.
Crossing below that mark was a negative signal for funds,
who sold an estimated 12,000 soybean contracts and 15,000 corn lots on the day.
escaped relatively lightly, with a 3,000 lot sell-off.
But then wheat did have some points in its favour, and not
just the relatively small long positions funds have potentially to sell.
The latest Egyptian wheat tender result confirmed that US wheat is
now far more competitive than Russian supplies in exports, and not far off
parity excluding shipping charges with the European Union supplies which won
the 300,000-tonne order.
French wheat accounted for most, helping Paris milling wheat
for November sidestep the market sell-off and close level at E261.25 a tonne.
London feed wheat fared less well, and dropped 1.6% to
£200.80 a tonne for November delivery.
Nonetheless, with rain boosting prospects for sowings of the
US winter wheat crop for 2013 harvest, that was better than Chicago's December
lot, which dropped 2.0% to $8.69 ¼ a bushel.
It should be said that there is still hope for better times
for row crops ahead, once harvest pressure is out the way, which for soybeans
could be soon.
The first week of October is seen as a period when soybean
futures typically hit bottom.
"Seasonally, we are nearing lows for soybeans," US
Benson Quinn Commodities said that while "these markets are
susceptible to further downside price action, lower trade is limited from these
'Trading proving difficult'
The sell-off extended to soft commodities too, with cotton, ever susceptible as an industrial
commodity to the macroeconomic mood, shedding 1.8% to 71.02 cents a pound in New
York for December, the lot's lowest close since early August.
And New York coffee
for December dropped 2.4% to 169.45 cents a pound, facing further pressure from
mounting inventories at the Ice exchange.
At 2.12m bags, they reached their highest since June 2010.
"Trading over the last few sessions certainly is proving difficult,
and I guess that is why as we come close to the end of the quarter books will
be closed and punters will wait until the new quarter," Sucden Financial said.
Raw sugar dropped
too, for the first time in five sessions, by 1.5% to 19.57 cents a pound for New
York's October contract.
The better-traded March lot dropped 1.6% to 20.38 cents a
Commerzbank flagged the potential for a recovery in values,
given the prospect of disappointing Indian and Brazilian output.
However, "the global market, which is amply supplied, is
unlikely to permit any sharp climbs in price".
Indeed, "the prospect of a third successive production
surplus, one which in 2012-13 is likely to be particularly high at 5.9m tonnes,
remains", the bank said.