Evening markets: export news fuels revivals in soy, wheat

If agricultural commodities had a, broadly, pretty dismal debut in 2014, the second session of the new year found bulls in control.

That was in particular the case in arabica coffee, which soared 4.4% to 116.35 cents a pound in New York, for March delivery.

The rebound was seen as being fuelled by technical factors, with the beans continuing to defy broker expectations of a drop below 100 cents a pound.

Indeed, the March contract managed to regain a series of moving averages, including the 20-day, 75-day and 10-day lines - and the 100-day which it ended above for only the third time since October 2012.

It is interesting that hedge funds have been taking a less downbeat view than many brokers, cutting their net short position in New York arabica coffee futures and options by more than 12,500 lots in the fortnight before Christmas, to the lowest in seven months.

Cocoa reheated

Where investors and analysts were in agreement was on cocoa, which closed up 2.3% at £1,717 a tonne in London for May delivery, and by 2.4% to $2.699 a tonne in New York for March.

Although deliveries by producers to Ivory Coast ports are up 40% year on year to 904,000 tonnes, exporters believe, the trend is expected to prove temporary, with the impact of weather setbacks earlier in the season seen wreaking a hangover.

Elsewhere among soft commodities, robusta coffee for March bounced 1.9% to $1,644 a tonne in London, helped by an estimate by India's state-run Coffee Board that the country's overall coffee output (largely robusta) will fall 10.2% to 311,500 tonnes in 2013-14.

Huge Egyptian order

Grain and oilseed markets witnessed recoveries too, most notably in wheat, which having closed below $6 a bushel in Chicago in the last session for 19 months, bounced 1.5% this time to end at $6.05 ¾ a bushel, for March delivery.

The recovery was fuelled by a huge Egyptian order, of 535,000 tonnes, which came hours after Algeria purchased 500,000-550,000 tonnes, spurring ideas that prices are low enough to spark demand.

That has been a big issue for US wheat markets - and weekly US export sales data showed why, coming in at 256,500 tonnes, below broker forecasts of a figure of 350,000-550,000 tonnes.

"Net sales of 248,500 tonnes for delivery during the 2013-14 marketing year were down 58% from the previous week and 46% from the prior four-week average," the US Department of Agriculture said.

'Widespread winterkill damage'

In fact, details of the Egyptian tender showed that US hard red winter wheat is well price competitive – excluding freight – being offered as low as $273.14 a tonne by Louis Dreyfus.

While some French grain was offered at $296.90 a tonne, Romanian, Russian and Ukrainian wheat cost $300 a tonne or more, but won patronage on grounds of cheaper shipping costs to Egypt.

Wheat prices also gained support from ideas that the US wheat crop may be suffering after all from the country's cold snap.

"Very cold temperatures early next week will likely result in some widespread winterkill damage in northern Kansas and Nebraska," said.

"Some winterkill damage will be likely there on 15-20% of the Plains wheat belt."

Chinese cancellations

Wheat's strength helped corn too, which also overcame some below-expectation weekly US export sales data.

"Net sales of 154,500 tonnes for 2013-14 were down 90% from the previous week and 80% from the prior four-week average," the USDA said.

This included a decrease of 116,000 tonnes booked for China, which has rejected several US corn cargoes on grounds of containing a GM variety unapproved by Beijing.

Indeed, this was the biggest weekly cancellation by China of US corn since October 2012.

Informa downgrades

As a further setback, US ethanol production fell last week by 13,000 barrels a day to 913,000 barrels a day.

"The weekly ethanol production number was down slightly," Darrell Holaday at Country Futures said.

"But so were ethanol stocks," down 78,000 barrels at 15.58m barrels, "so nothing big in those numbers."

And as an extra fillip, Informa Economics lowered its estimate for US corn production last year by 61m bushels to 14.162bn bushels (despite raising its yield idea by 0.4 bushels per acre to 161.6 bushels per acre).

Informa, citing lower use of nutrients by farmers in these times of lower crop prices, also cut by 2.75m tonnes, to 67.4m tonnes, its forecast for Brazilian corn output in 2013-14 - well below the USDA's 70.0m-tonne figure.

Corn for March closed up 0.7% at $4.23 ½ a bushel in Chicago, recovering from a contract low of $4.18 ½ a bushel set earlier.

'Vulnerable to additional liquidation'

Soybeans for March also recovered, after spending much of the day in negative territory, to post a gain of 0.1% to finish at $12.71 ¼ a bushel.

Informa revisions were mixed, with a 31m-bushel upgrade to the estimate for last year's US crop, to 3.329bn bushels, but a downgrade of 2m tonnes to 57.5m tonnes in the forecast for the Argentine harvest, thanks to lower planting hopes.

And as a real downer, there has been plenty of comment about the oilseed's deteriorating technical in Chicago.

"Chart-wise, soybeans remain vulnerable to additional liquidation after having failed to hold several key support levels in yesterday's trade," Benson Quinn Commodities said.

Brazilian harvest reports

Chicago-based broker Allendale said: "Technical damage to the soybean and wheat charts yesterday may have a longer lasting effect unless we can quickly stop the freefall.

"The March soybean contract closed below the key 100- and 200-day moving averages."

Furthermore, the soybean harvest has started in Brazil, "bringing with it concern that China will begin to shift their interest to South American soybeans and possibly cancel purchases of U.S. soybean shipments", US Commodities said.

At RJ O'Brien, Richard Feltes flagged "excellent yield" reports, of 47.8 bushels per acre, from the early harvest in the key Brazilian state of Mato Grosso.

Bumper export sales

However, strong weekly US export sales helped quell concerns.

Weekly US export sales were strong, at 943,400 tonnes of old crop, "up 31% from the previous week and 27% from the prior four-week average", the USDA said, besides exceeding market expectations of a figure of, at best, 800,000 tonnes.

That brought the total US sales and shipments so far in 2013-14 to 40.5m tonnes, or 1.49bn bushels.

"That number is now above 1.475bn bushels the USDA is currently projecting for the entire crop year," Country Futures Darrell Holaday said.

And of 1.53m tonnes in actual exports, 716,600 tonnes headed for China, reducing the volume up for potential cancellation - unless there are GM concerns about US soybeans too, of course…

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