Corn's winning streak nearly ran out of gas thanks to a tumble
in US ethanol production, which raised ideas that needed rationing of the grain's
meagre supplies is succeeding on the biofuels score, at least.
Chicago corn futures earlier looked clearly on course for an
eighth successive day of gains, extending a winning streak already the longest
since June, as investors continued to lap up the grain following a downgrade on
Friday by the US Department of Agriculture to its estimate for domestic stocks
at the close of 2012-13.
"Money flow into agricultural commodities seems to be one
reason for this positive move in prices," Paul Georgy, president at broker
Allendale, said early in the trading day.
Other observers too, including Societe Generale, have noted
the potential for a reversal in funds' exit from agricultural commodities.
However, all but a fraction of corn's gains evaporated after
official data showed US ethanol production tumbling to 784,000 barrels a day
last week from a healthy 826,000 barrels per day the week before.
The 784,000-barrel figure was the lowest since the Energy
Information Administration started releasing weekly data in June 2010, and some
40,000 barrels below the figure needed to meet government forecasts for US corn
use for making ethanol in 2012-13.
And, as an extra sign of a loose market, US stockpiles of the
biofuel rose too, by 2.6% to 20.36m barrels.
OK, some one-off factors may have been involved too, with
Darrell Holaday at Country Futures noting "a surge in US ethanol imports from
Brazil late last year to meet ethanol blend requirements", a dynamic which "pressured
ethanol margins into the first of the year", besides supporting inventories.
US ethanol plants are losing $0.09 per gallon of ethanol
produced, according to Morgan Stanley.
But Brazilian imports are seen by many observers as less of
a threat now the USDA has encouraged domestic biodiesel production with a tax
credit imposed as part of the negotiations which spared the US from going over the
Biodiesel represents an alternative to Brazil's cane-based
ethanol toward meeting the US biofuels blending mandate.
Corn, while actually looking set for a negative finish heading
into closing deals, settled up 0.2% at $7.31 ¼ a bushel – signally staying above
its 50-day moving average, a key technical pointer won back in the last session.
'Lack of moisture'
The grains was helped by the continuing concerns over dry weather
in Argentina and southern Brazil.
"The weather forecast for Argentina is dry for the next 10
days which is drawing attention and support for both grain and soybean prices, "Allendale's
Paul Georgy said.
And it was supported by wheat
too, which closed up 0.3% at $7.85 a bushel in Chicago for March delivery,
boosted by its own weather fears - for dryness in many US hard red winter wheat
"The lack of moisture in the forecast for the southern Plains
and the anticipation of wheat filling the short falls in corn supply are
supportive to wheat," Mr Georgy said.
'Just did not sprout'
Meanwhile, Russia's Grain Union raised concerns over the
impact of cold weather on the Russian winter grains harvest, likely forcing
reseeding with spring crops, which tend to be lesser yielding.
Of over 15m hectares [of winter grains] sown, about 1.2m can
be written off because of dry weather conditions. They just did not
sprout," Arkady Zlochevsky, the union's head, said,
And, on the demand side, US wheat may be finding some trade
buyers – for now.
"China has been rumoured to be sourcing US wheat," US
Commodities said, if adding that the US "will begin to be uncompetitive in the
world market after this rally".
However, the price gains did not translate fully into
headway across the Atlantic, where Paris wheat for March closed down 0.8% at
E250.50 a tonne. London wheat at least added 0.2% to £215.50 a tonne.
In fact, it was left to soybeans,
Chicago's laggard early in the session, to show the greatest headway, closing
up 0.9% at $14.36 ½ a bushel for March delivery, booted in part by the South America
"The soybean complex garnered more buying based on warmer
and drier conditions in Argentina and no meaningful sign of a change," Mr Holaday
"There is no sign of crop stress yet, but the critical
reproduction stage is now starting for well over half of the crop. If we see
two weeks of warm and dry conditions, stress will start showing up."
Furthermore, there is continued talk of Chinese buying,
speculation fuelled by a Bloomberg survey estimating that the country's
crushers ordered 30 cargoes of soybeans from the US or South America last week,
compared with a typical pace of 10-20 cargoes.
Soft commodities, meanwhile, continued to find gains harder
to come by, with New York raw sugar
closing down 0.9% at 18.45 cents a pound for March delivery.
The sweetener declined on continued ideas of a rich world surplus
in 2012-13, and with investors discounting ideas of end user demand by the
likes of Russia and Africa.
A report in the daily newspaper O Estado de S. Paulo on
Tuesday that Brazil may announce a 7% rise in gasoline prices as soon as next
week, so supporting ethanol prices and raising the competition with sugar for
cane, also failed to win market traction.
"The bears pretty much discounted any talk of the influence
the domestic Brazilian gasoline policy would have on the market as 'it's
already in the price'," Thomas Kujawa at Sucden Financial said.
"And it seems they were right as we hear prices rises were reported
in Brazilian press yesterday and we failed to test resistance."