It was always going to be difficult for commodities, and
other risk assets, to post gains in the flight to safety that followed Cyprus's
surprise plans to tax bank deposits.
Euro weakness – amid fears that the Cyprus levy, which is
being imposed as part of a bail-out deal, might set a trend when coming to
other eurozone support packages – fostered dollar
strength which only added to commodities' headwinds.
A firm dollar makes dollar-denominated exports, such as many
raw materials, less affordable to buyers in other currencies.
commodities index lost 0.7%.
"The strength in the U.S. Dollar as the Euro weakens has
produced a 'risk off' attitude today in futures in general," Jerry Stowell at
Country Futures said.
"It's an ugly day in all of the ags."
'No longer fears short-covering'
But many agricultural commodities did especially badly, with
investors viewing the extensive coverage of short positions in the week to last
Tuesday, as unveiled in latest data from the Commodity Futures Trading
Commission, as creating scope to put on fresh ones.
Raw sugar, for instance, in which speculators cut their net
short position by 75% in a historically large bullish swing, tumbled 3.2% to
18.29 cents a pound as bets on lower prices came back into vogue.
The drop in prices "shows that the market no longer fears
the impact of a short-covering rally by the speculative community", Nick Penney
at Sucden Financial said.
London white sugar, whose strength has been a support to raw
sugar, faded, closing down 2.2% at $527.40 a tonne for May, while ideas of
strong production this year came back home to roost.
"The overall statistically bearish tone will remain until
either a weather event in a major growing area or a major end user stepping up
causes near-term thinking to change," Mr Penney said, forecast that raw sugar futures
will go "back down to 18 cents in the short/medium term".
Fresh weakness in the Brazilian
real, which has lost some 3 centavos against the dollar since hitting a
10-month low a week ago, has also done New York raw futures few favours, given
that Brazil is the top producer of the sweetener.
Ditto for arabica
coffee, which closed down 2.3% at 134.35 cents a pound in New York for May 2013
delivery, the lowest finish for a nearest-but-one contract since May 2010.
Besides the prospect of a strong harvest this year, the bean
is also being pressed by a shortfall in selling of the last crop, compared with
"One of the issues has been that Brazilian growers boxed
themselves in a corner by holding back on sales and the danger was in
anticipating prices to rally up, which never happened," Judith Ganes-Chase, the
veteran soft commodities analyst, said.
"Brazilian farmers were betting against themselves."
Against that backdrop, the declines in grains looked
relatively modest, although Chicago soft red winter wheat, a firm favourite among speculators seeking short exposure, comfortably
underperformed the average commodity.
The benchmark May contract fell 1.4% to $7.12 ¾ a bushel for
May delivery, and lost more than 2% at one stage.
Signally, Kansas hard red winter wheat, in which hedge funds
have less interest (despite it comprising a bigger proportion of the US harvest
than soft red winter) lost a more modest 1.0% to $7.44 ¼ a bushel.
And there were some reasons to feel bullish on the crop,
with Algeria, Jordan and Tunisia putting out tenders, extending ideas of firm demand
US exports, as measured by cargo inspections, for last week
were reasonable, at 23.9m bushels , down from 28.7m bushels the week before, but higher than the 21.2m bushels
in the same quarter last year.
(Paris wheat, of course, had a weakening euro to support it,
helping the May lot close unchanged at E234.75 a tonne. London wheat for May,
affected by a pound which gained against the euro but declined against the dollar
ended 0.7% lower at £196.60 a tonne.)
Still, it looks like drought-pressed US winter wheat
seedlings are set for more rain, with weather service MDA noting that this week
"showers across the Midwest and central Plains will further improve soil moisture,
which will benefit wheat and spring crops in a few weeks".
The southern Plains are set for rain next week.
And there is an upswell of hope for crops elsewhere too,
with Richard Feltes, at broker RJ O'Brien,
noting that an "improving moisture base across former Soviet Union reinforces
ideas of a sizeable rebound in 2013 grain production".
Commerzbank took an upbeat view of Coceral data on Friday
which showed a sharp recovery in crops in southern and eastern Europe which
were hurt by drought last year.
"Double-digit growth figures are anticipated in some cases,
particularly in Romania, but also in Bulgaria and Spain," the bank noted.
Corn bucks the trend
In fact, Chicago wheat's performance was bad enough to lose
it once more its premium over corn, which
closed up 0.4% at $7.20 a bushel, a momentous gain on a day like this.
Corn was underpinned by OK export inspections, by current if
not historic standards, of 15.4m bushels, up nearly 900,000 bushels week on
But the grain is also being helped by ideas that farms are
receiving too much of a good thing – ie rain.
The precipitation helping winter wheat seedlings is, in some
areas of the US, hindering farmers trying to get crops in the ground.
'Very slow planting'
"Showers increased across the south western Midwest and far
north eastern Delta this past weekend, which slowed fieldwork and increased
wetness once again," MDA said.
"Showers should continue there early and late this week, which
will keep spring crop planting very slow."
At Martell Crop Projections, Gail Martell said: "March has
been unseasonably cold in the Midwest, 4-7 degrees Fahrenheit below normal, and
averaging 31 Fahrenheit. This is increasing worries about corn planting delays."
At broker Allendale, Paul Georgy said: "Traders are watching
the weather forecast for the Midwest which currently has another system moving
through later this week.
"Planting delays are already being talked about."
And, on the demand side, hopes of improved orders from the biofuel
industry gained momentum as Valero revealed it was restarting a plant in Ohio,
with an Indiana factory, the last one left mothballed by last year's high corn
prices, also due to reopen soon.
Soybeans, however, extended their losing streak to five
successive sessions, amid growing fears that Brazil's logistical hiccups (which
represent a key problem for Brazil's new agriculture minister) may no longer be
driving trade America's way.
Ships are, after all, being filled, even if after delays,
and Argentina is now believed to be taking many overspill orders.
Indeed, there are now fears of cancellations of orders of US
US weekly cargo inspection data were of little comfort, coming
in at 8.9m bushels – halving week on week.
'Systemic logistical problems'
Soybean's price fall, down 1.2% to $14.09 ½ a bushel for
the May contract, "suggests growing scepticism over whether all existing US
export sales will be executed", RJ O Brien's Mr Feltes said.
"Some traders fear that China will switch US soy sales to South
America in June-August."
Certainly, Brazilian prices are offering buyers cause to
stick with the country, turning negative at the port of Paranagua for the first
time since 2008.
"The drop in price is believed to be a direct result of the
systemic logistical problems in Brazil," Michael Cordonnier at Soybean and Corn
"The negative premium is expected to increase in coming
weeks as more soybeans arrive at the ports and shipping delays mount."
Meanwhile, US sowing delays are not such a support for soybeas, which are later planted.
Indeed, poor corn seeding conditions could prompt farmers to grow extra soybeans instead.