Tuesday headed towards a difficult close in grain and oilseed markets, with futures struggling to maintain their
positive momentum of the past two sessions.
"It is Turnaround Tuesday for the grains," US Commodities
said, a reference to the Chicago traders' adage that the second session of the
week reverses the trend of the first.
Grains declined despite the prospect of a swathe of US
Department of Agriculture data on Friday, which, in creating uncertainty and encouraging
investors to close positions, might be expected to support corn and wheat
Data overnight showed that speculators have a near-record
net short position in wheat and large net short in corn too, implying that
closing positions means upward pressure on prices.
Also to factor in to the mix was the prospect of the rebalancing
exercise by index funds, in which the return portfolios to mandated weights,
meaning selling 2013's winners and buying the losers, a group which includes wheat, down 22% in Chicago last year,
and corn, down 40%.
"It is speculated that fund will need to purchase 90,000
corn contracts this week to balance, perhaps by Wednesday, giving corn a bounce,"
US Commodities said.
Rival broker Allendale said: "Traders are estimating the
index funds will be covering approximately 90,000 corn contracts and nearly 20,000
soybean contracts before they are
'In danger of
And this before factoring in some fundamental reasons for
support, such as the cold threatening winter wheat seedlings in parts of the
"Temperatures remain very cold across the wheat belt," CHS
"There is sufficient snow cover for most areas, but parts of
eastern Indiana, north central Kentucky, and southern Ohio lack snow cover and
could be in danger of winterkill.
"Winter wheat kill in the Ohio River Valley has the market
concerned. Satellite imagery shows there was a large area without sufficient
snow cover to protect the crop from sub-zero temperatures."
Still, other investors showed less concern.
Benson Quinn Commodities said that freeze damage "is
expected to be limited to a few areas and it's tough to count out a resilient
wheat plant", and put more stress on poor technical factors in the wheat market.
"All three US wheat markets [Chicago, Kansas City and
Minneapolis] tried higher trade overnight, but are reeling from the poor close
experienced yesterday," the broker said.
"The technical structure in the wheat market showed signs of
improving on Friday and early in yesterday's trade, but seems to be breaking
down as the market simply can't trigger additional short covering."
And as an extra pressure, ideas of Argentine supplies
continue to improve, albeit from low levels.
"Argentina's wheat harvest, which is now about 75% complete,
has been better than expected and there is talk that they will begin exporting
as soon as January 10," CHS said.
"This would cut into potential US hard red winter wheat
business to Brazil."
Soft red winter wheat for March ended 0.5% lower at $6.02 ½ a
bushel in Chicago.
Indeed, wheat helped weigh on fellow grain corn, which closed 0.4%
lower itself at $4.26 a bushel for March.
It helped bears' cause that, even though the prospect of
Friday's slew of data has created uncertainty, there is reason to think that
sellers may emerge in the ascendancy.
The report is expected to raise the USDA estimate of last
year's US corn crop by 77m bushels to a record 14.066bn bushels, with the
forecast for stocks at the close of 2013-14 upgraded by 69m bushels to 1.86bn
And as for the December quarterly US corn stocks figure,
that has exceeded trade expectations in three of the last five years.
'Hot and dry' – for now
OK, the news was not all bad, with JCI reporting that China
is going easy on rejecting imports of distillers'
grains (DDGs), a corn-based feed ingredient, even if cargoes of US corn itself
are still under a cloud over concerns about containing a genetically modified
variety not approved by Beijing authorities.
"DDG values appear to have found a price from which they can
bounce after the $90-per-tonne break since Christmas," Allendale said.
Furthermore, "Argentina is hot and dry", CHS Hedging said.
"But rains are still in the forecast for later in the week."
At RJ O'Brien, Richard Feltes said that "weather leans
negative [for prices], with dry areas of Brazil limited to 10-15% of crop
areas, while Argentine dryness is limited to 20-25% of the crop in the south
west quadrant of Pampas."
The pressure from South American weather goes for soybeans
too, and the oilseed struggle despite what should have been a big shot in the
arm, with the announcement by the US Department of Agriculture that China had
purchased 350,000 tonnes for 2013-14 delivery.
Concerns that China will switch its custom to South America,
spurning US supplies and even cancelling orders, have been a big concern to
soybean investors as Brazil's harvest ramps up.
However, was Tuesday's order quite as good as it seemed?
At Country Futures, Darrell Holaday said: "Our bet is that
it is optional origin," meaning that the soybeans China has bought need not
come from the US.
"They are making these purchases as somewhat of a hedge
against logistics problems at Brazilian ports.
"There seems to be very little concern about the size of the
crop, but concern about the ability of the Brazilian ports to meet the shipping
demands of China."
The steadiness in DDG prices was on paper a boost to soybeans too, in
that DDGs compete with soymeal as a protein
source in feed rations.
"Both the domestic and export DDG market are finding demand
at these levels," US Commodities said.
Still, although soymeal futures for March managed a 0.3% gain
to $415.80 a tonne, soybeans themselves for March ended
0.75 cents lower at $12.76 a bushel for March delivery.
weighed, falling 0.6% to 37.93 cents a pound.
Among soft commodities, arabica
coffee for March tumbled 3.1% to close at 117.25 cents a pound in New York,
on profit-taking after the bean's 4% gain in the last session.
"The premium as compared with robusta coffee has reached a six-month high," Commerzbank said.
Raw sugar for
March closed down 0.1% at 16.06 cents a pound, still looking for its first
positive finish of 2014.
"The short term arguments we hear for a short term bounce
are chat that the potential for a sugar deluge from India is unlikely around
present levels - it's rumoured near 17 cents
a pound is the price it becomes attractive," Tom Kujawa at Sucden Financial
However, the broker said it expected price "pressure in the
long term, and lower prices for the medium-to-long term".