PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 21:07 GMT, Tuesday, 3rd Dec 2013, by Agrimoney.com
Evening markets: corn extends headway. Robusta coffee soars

Commodities overall were somewhat in demand on Tuesday, but grains and robusta coffee especially.

The CRB commodities index gained 0.6% to record its highest close in a month, helped by a weaker dollar, which retreated ahead of key US jobs data due on Friday.

A weaker dollar boosts prices of dollar-denominated commodities by making them more affordable to buyers in other currencies.

But some agricultural commodities did far better, especially robusta coffee, which soared 4.4% in London for January delivery to close at $1,733 a tonne, the highest finish for the contract in more than two months.

The bean was boosted by concerns over tight export supplies from Vietnam, where producers are withholding supplies despite a strong harvest.

Brazil's Conselho Nacional do Café also noted a "sharp decline" in inventories held for delivery against London futures, and a "reduction in the level of supply held by roasters".

China concerns

Grains couldn't match that.

But corn especially continued to attract buying, despite widespread concern over the potential for China to turn away more imports of US supplies on grounds of containing an unapproved genetically modified variety.

"China's rejection of US corn has export shipments to China in question," CHS Hedging said, noting that the US has supplies 94% of China's imports so far in 2013.

"Corn struggles under sell pressure with China reporting two cargos of US corn have tested positive for unapproved GMO strain MIR 162," Benson Quinn Commodities said.

US Commodities added that "it is speculated whether China will see any more US corn imports at all in the next few months.

"This will weigh on corn prices in the US and force Chinese buyers to buy more local supplies."

'Helping corn rally'

Still, what corn had in its favour was the end of the US harvest, just about, meaning an end of pressure from the seasonal uptick in supplies, and indeed with growers reluctant to sell at current prices, helping support them.

Furthermore, Informa cut its forecast for Brazil's 2013-14 crop by 500,000 tonnes to 70.6m tonnes, albeit while raising its estimate for Ukraine's harvest.

And ethanol did its bit, by jumping 2.9% to $1.763 a gallon for January delivery, the contract's best close in four months.

Besides technically, Chicago corn futures are looking more appealing.

"Bargain hunters are helping corn rally off the lows and giving technical traders a ray of hope as charts suggest a potential reversal pattern," Paul Georgy at Chicago broker Allendale said.

'Vulnerable to short-covering'

Indeed, hedge funds have quite some short positions to cover, ie take profit on.

 "Both corn and wheat are carrying large managed fund shorts, making both vulnerable to short-covering," RJ O'Brien's Richard Feltes said.

 And this at a time when the unwinding of long soybean-short grain spreads is proving popular.

"There is a lot of repositioning of spread trades, particularly the soybean/wheat and the soybean/corn," Darrell Holaday at Country Futures said.

"Buying soybeans and selling either corn or wheat has remained very popular, but is giving up ground after the key reversal down in the soybeans yesterday."

'Dropped sharply'

Indeed, soybeans fell, although not much, down 0.1% to $13.19 ¾ a bushel for January delivery, also being undermined by fears for imports by China, the top buyer of the oilseed, of US supplies.

"China cancelling cargoes of corn because of GMO contamination has soybean traders banking profits. Will China cancel soybean purchases as well?" asked Paul Georgy at broker Allendale.

"Looking back to last year, export sales dropped sharply beginning in early December."

'Wondering about the slowdown'

In fact, Benson Quinn Commodities noted that Chinese buyers were reselling purchases.

"There are some reports of cargoes of soybeans in China being resold by processors rather than crushing the soybeans as they have plentiful supplies and feel they can cash in the gain on the soybean values rather than processing them," the broker said.

Certainly, signs of Chinese buying have faded for now.

"This is the third day in a row that we have not seen a USDA announcement of new sales of soy or grains," Country Futures' Darrell Holaday said.

"This is not a big deal, but does have some wondering about the slowdown."

'Catching a bid'

Wheat, meanwhile, also gained from the unwinding of spreads against soybeans, besides by ideas of US supplies looking cheap against rival exports.

"Wheat is catching a bid on a firm soft red winter wheat basis and the increasing competitiveness of US wheat into the Mediterranean basin," RJ O'Brien's Richard Feltes said.

Sure, Romanian supplies won the latest tender by Egypt's Gasc grain authority, which purchased 60,000 tonnes at $304.89 a tonne, including freight.

But French supplies remained in contention, helping Paris wheat for January gain 0.7% to E211.50 a tonne.

And Chicago wheat for March added 1.0% go $6.68 ¼ a bushel.

Harvest estimates

Also helping the grain was a restatement by Argentina of its lowball 8.5m-tonne harvest for its wheat crop, signalling low export potential this season.

And while Australia's Abares commodities bureau raised its wheat production estimate to 26.2m tonnes, from a September estimate of 24.47m tonnes, the impact of the upgrade was offset by a caution over weak prospects for the sorghum harvest early in 2014.

Besides, hedge funds' net short position in wheat was actually a record, at 66,000 tonnes, raising questions over their appetite for more such holdings.

'Down, down, deeper and down'

Back among soft commodities, raw sugar closed lower for a 10th successive session, this time by 0.9% to 16.81 cents a pound for March delivery.

"'When will it crack?' is the $1m question as we drip, drip lower with no real indication, especially in volume, of a possible short term bottom" in raw sugar prices, Sucden Financial said.

"It's been down, down, deeper and down since Brazil sugar week," fuelled by erosion by hedge funds of a huge net short in raw sugar futures and options.

"We only expect a bear profit take once it's clear the stubborn bulls left in [with long positions] have cut out."

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