There's nothing like a massive bullish bet by hedge funds on agricultural
commodities to stoke thoughts that it might be time to get out.
After Agrimoney.com pointed out that hedge funds are the
most bullish in three years on the main US-traded agricultural commodities,
there was some chatter that this was a gigantic sell sign.
So it proved, in New York, where coffee tumbled more than
3%, besides in Chicago, where grains were little helped by the calm over the
Crimea crisis, for now.
The weekend's Crimea ballot, while failing exactly to please
Western nations, at least proceeded peacefully and with predictable results.
Crimeans voted overwhelmingly to secede from Ukraine, as
markets had expected and, as expected, the European Union and the US imposed
sanctions on more than 20 Russia and Ukrainian people deemed key to the ballot.
The lack of a more extreme reaction, or of the ballot
sparking unrest, left investors with little cause to inject extra risk premium
in grain prices, which have been lifted by concerns over the impact of the
Ukraine turmoil on the country's barley, corn and wheat exports.
"The reality is that there is nothing new from late last
week and that has limited buying interest," Darrell Holaday at Country Futures
CHS Hedging said: "Crimea voted overwhelmingly to join
Russia in its referendum yesterday in a result that surprised no one."
Few shorts to cover
In fact, there was something new, with Russian president
Vladimir Putin signalling that he might be prepared to negotiate a deal over
Ukraine's future, maybe using Crimea as a bargaining chip.
However, the potential for accord was only an extra
depressant for grain prices.
And even though the Ukraine Agribusiness Club cautioned over
large losses in spring sowings because of a shortage of credit, the impact was
eroded somewhat by a more benign assessment by the US Department of Agriculture
And bears had other factors in their favour too. One was the
switch by hedge funds to holding a net long position in Chicago wheat for the
first time since October, limiting ideas of the amount of buying to come from
In fact, the gross short position in Chicago futures and
options was the lowest since December 2012.
A further setback for bulls was weekly US export data which,
at 496,396 tonnes, fell below some forecast, although proving more than 57,000
tonnes higher week on week.
"Wheat exports were reported below expectations," CHS
Besides it is not as if the US, and the European Union, are
going to pick up all the exports lost by Ukraine from export setbacks, or
worries about them. (In fact, "Ukrainian corn
loadings last week were the highest of the year at nearly 700,000 tonnes," CHS
Moscow-based SovEcon lifted to 24.0m-24.4m tonnes, from
23.1m tonnes, its forecast for Russian grain exports in 2013-14, citing
possible disruptions in Ukraine.
Wheat for May fell 1.9% to $6.75 ½ a bushel in Chicago, and
by 1.8% to E207.75 a tonne in Paris.
'Basis values falling
Corn fell 1.4% to
$4.79 a bushel, feeling similar pressure, although weekly US exports at 976,472
tonnes were viewed more charitably, up some 40,000 tonnes week on week, with
sales of a further 107,400 tonnes to Mexico announced through the US Department
of Agriculture's daily alerts system.
However, countering that were weaker US cash markets.
"Corn and soybean
basis levels continue to deteriorate in the upper Midwest," Darrell Holaday at
Country Futures said.
"Transportation problems have left a lot of inventory in the
north and cash buyers have little interest in buying cash grain that they
cannot move. End-users have a lot of coverage."
CHS Hedging said: "Basis values continue to fall apart in
the country as train logistics keep physical products from moving."
Still, Doane had some succour for bulls in saying that while
"tensions have eased slightly following the referendum over the weekend for
Crimea to leave Ukraine, the crisis is far from resolved which is likely to
trigger ongoing cycles of 'risk on/risk off' behaviour by the trade".
Soy vs grains
Not that bulls were completely without reward, with soybeans for May closing up 0.2% at
$13.91 ¾ a bushel – not much of a gain, but a gain nonetheless.
Spreading was credited for giving the oilseed some strength,
with "short grain-long soybean" bets, tor the closure of the reverse positions,
seen as a factor.
But export news was supportive too, and not just the lack of
confirmation of further cancellations by China of orders of the oilseed from
the US, or even Brazil.
US weekly exports came in at 939,738 tonnes, down from
1.087m tonnes a week before, but a healthy total nonetheless, above the rate
needed to meet USDA forecasts for the whole of 2013-14.
On top of this, the US sold 110,000 tonnes of soymeal to an
unknown importer for 2014-15.
However, Jefferies Bache cautioned that the threat of China
ditching soybean import orders had not gone away.
"There are strong indications that lower demand in China and
the accumulation of burdensome stocks will result in cancellations and once
they begin to be announced, they could come quickly," the broker said.
And there were signs of progress in Brazil's harvest despite
rain, with Safras estimating that the Mato Grosso crop is 84% in the barn, down
only 3 points year on year despite heavy rains.
The overall harvest was pegged at 59% complete, up 1 point
year on year.
And the El Nino might not prove such a setback for soybeans, or for many other crops, as many investors fear.
In New York, arabica
coffee got gripped by selling even
more so than grains, falling 3.5% to 191.40 cents a pound for May delivery.
talk over the International Coffee Organization announcement that losses to
rust in Central America had not been as big as thought, "some showers have been
reported recently" in Brazil's coffee belt, Jack Scoville at Price Futures
In fact, Somar forecast only light rains this week for
coffee areas, but said that March 22-26 might bring better precipitation.
Copper vs sugar
Talk of rain was hardly a help for raw sugar either, which
dropped 1.2% to 17.05 cents a pound for May delivery, although propped up a little
by resilience in copper?
"If the coffee market is our Brazilian weather proxy then
copper is our 'China gauge' or 'global macro demand side' indicator," said Tom
Kujawa, co-head of the softs department at Sucden Financial.
Copper ended at $6,749 a tonne in London, up $10.50, and
having recovered more than $100 a tonne from its weakest level since July 2010
hit last week.