Just as commodities seemed to be being overshadowed by
shares, along came endorsement from a most unusual quarter.
Calpers, the largest US public pension fund, whose slashing
of its commodity investments late last year hammered a large dent into the
credibility of the asset class, revealed it was not so downbeat on raw
materials after all.
Terming commodities to "an insurance policy for your
portfolio particularly for people like us that have liabilities that are
correlated with [inflation]", Calpers portfolio manager Andrew Karsh said the fund's
switch to inflation-linked bonds may be short-lived.
"If we do see CPI [the consumer price index] go up, normally
it would be led by energy prices and food prices. From that perspective,
commodities would be a much stronger hedge," he told the Financial Times.
Not all commodities returned his vote of confidence with headway.
commodities index ended down 0.5%, with Brent crude tumbling 1.8% and setting a
three-month low, amid lingering concerns over Cyprus's tax on deposits setting
a dangerous precedent.
However, agricultural commodities at least included many
gainers – albeit in many cases posting recoveries from oversize falls in the last
New York cotton, for instance, recovered 0.3% to
91.13 cents a pound for May delivery, although the new crop December contract eased
0.1% to 88.26 cents a pound, amid ideas that US farmers were getting a little too much stimulus to plant the fibre this year.
'Conspicuous with good news'
New York raw sugar,
which in the last session suffered its biggest fall in five months, at least
managed to end in positive territory this time, gaining 0.1% to 18.31 cents a
pound for May delivery.
But that could be argued as somewhat miraculous given that,
as Thomas Kujawa at Sucden Financial noted, "the newswires are conspicuous with
good news from Thailand, India and of course Brazil on production at the moment".
This is "making it seem almost inconceivable the funds will
completely cover and go long in the near term", after covering a stack of short
positions in the week to March 12.
On Tuesday, German-based FO Licht estimated sugar output in
Brazil's main Centre South producing region at 36.2m tonnes in 2013-14, up from
34.1m tonnes in the current season.
In Brazil itself, Datagro pegged total Brazilian output
(including that from the smaller North East region) at 40.7m tonnes, a rise of
2.4m tonnes on 2012-13, and backed by a record cane crop of 643.5m tonnes.
That compares with 591m tonnes in 2012-13, and is ahead of
Brazil's crushing capacity of 599m tonnes, according to the analysis group.
'More longs to flush
In Chicago, soybeans
let Calpers down a little, falling 0.2% to $14.06 ¾ a bushel for May delivery,
the weakest finish for a spot contract in more than two months.
The oilseed's fall "is a sign that there are more longs to
flush out, and that the soybean market is unable to hold risk premium without
periodic fresh demand news", Richard Feltes at RJ O'Brien said, a reference to the
number of investors with long positions in the oilseed, which remains historically
elevated, if well below 2012 highs.
While there was talk of frost damage to Argentine soybeans,
these "appear unfounded", US Commodities said, with weekend temperatures not getting
And while there was some potentially positive demand talk around,
with China's Sunrise Group said to be cancelling 2m tonnes of Brazilian imports
after only two of 12 cargoes which were to have shipped in January and February
arrived, it was not obvious that the trade would transfer to the US.
"It is worth noting that the Chinese are expressing interest
in US soybeans, but lining up freight quickly is very difficult," Darrell
Holaday at Country Futures said.
In fact, the cancellation got some traders concerned that the
demand might be disappearing altogether, in the face of falling profitability
in hog production.
"Poor hog margins in China are causing a slowdown in the
soybean crush," US Commodities said.
'Better demand environment'
Corn and wheat, however, did make headway.
"Grains are operating in a better demand environment, and
are thus reluctant to shed value," Mr Feltes said.
Wheat especially had evidence of buyers, with Tunisia buying
67,000 tonnes of soft wheat, optional origin, and Algeria, Bangladesh, Iraq and
Jordan all with tenders out.
Wheat prices "are benefitting from increasing export demand
and greater inclusion in feed rations" in the US itself, Benson Quinn Commodities
"Wheat usage is said to be gaining traction in the hog and
turkey feed markets."
Furthermore, US crop data showed that not all drought-beset US
winter wheat is benefitting from moisture and improving in condition.
In Chicago, wheat for May gained 1.3% to $7.22 a bushel, while
faring even better in Paris, closing up 1.6% at E238.50 a tonne.
"A return to cold weather across much of Europe" is
supporting values there, FCStone said, with a weaker euro also chipping in.
London wheat for May lagged again, up 0.6% at £197.75 a
tonne, despite a fresh wave of rains adding to fears for spring sowings too,
after a dismal autumn seeding season.
Grain news from the former Soviet Union was mixed, with Ukraine
estimating its shipments in 2012-13 at potentially 25.6m tonnes, ahead of a
previous forecast of 23m tonnes.
However, Sovecon pegged Russia's exportable surplus of grains,
mainly wheat, in 2013-14 at a modest 16m tonnes.
"It is clear that Russia's 2013 grain production will not rebound
to 95m tonnes, the agriculture ministry target, if weather conditions are close
to the average of the [past] several years," the influential consultancy said.
Back in Chicago, corn
lagged wheat a little, but not enough to lose its unusual premium, gaining 1.2%
to $7.28 ½ a bushel for May delivery.
OK, early planting pace of the US crop is going ahead of
But the fear is that cold weather mean this may not last
when the sowing window opens in the main Midwest growing areas.
"Although it is the middle of March, traders are getting
concerned about timelines of corn planting in the Midwest," Paul Georgy at broker
'Extreme cold is worrisome'
At Martell Crop Projections, Gail Martell said: "Early
morning temperatures in Canada and the northern US bottomed out below zero Fahrenheit
"A thick layer of snow persists in the northern latitudes. Extreme
cold in March is worrisome for delays in spring fieldwork and planting in the Canadian
prairies and Midwest."
The March 17 temperature at Redwood Falls, Minnesota, "was
52 degrees Fahrenheit colder than the same date last year", she added.
RJ O'Brien's Richard Feltes said that a "continuation of
cold early spring US temperatures could be a supportive factor [for prices] -
but not until after Easter."