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Evening markets: firm dollar adds to grain price headwinds


While corn has stopped, for now, putting in multi-year lows, that doesn't meant that bears have loosened their grip on grains.

They have merely turned some of their attention to wheat.

Chicago's March wheat lot, about to take over as the spot contract, after the expiry of the December lot tomorrow, closed down 1.1% at $6.33 a bushel, its weakest finish ever, and the lowest for a nearest-but-one contract for nigh on 18 months.

The contract is now down more than 5% so far this month, displaying more of a Santa rout than a Santa rally.

Stronger greenback

In truth, it was hardly the most favourable day for commodities in general, with the dollar rising 0.4% against a basket of currencies, boosted by ideas that US easy monetary policy might be tapered out sooner rather than later.

A stronger dollar undermines prices of dollar-denominated exports, such as commodities, by making them less affordable to buyers in other currencies.

The CRB commodities index lost 0.3%.

For Chicago wheat, export demand is particularly sensitive, given the slowing pace of US shipments, the lack of high profile export deals and the huge harvest north of the border in Canada now to compete with.

In fact, Algeria on Thursday bought 150,000 tonnes of durum wheat, at $405 a tonne including freight, expected to be sourced from Canada.

Canola collapse

As a reminder, Canada last week upgraded its canola and wheat harvests to clear record highs, although the impact on markets has been somewhat delayed.

Canola, the rapeseed variant, too has seen a somewhat delayed acceleration in selling, tumbling 2.1% on Thursday to close at Can$448.10 a tonne in Winnipeg for January delivery, the lowest finish for a spot contract since August 2010.

The contract is now down nearly 10% this month.

Unsurprisingly, Paris rapeseed has suffered too, although less so, protected somewhat for now by being within the European Union, the top consumer of the oilseed, and not needing to compete for export market share.

Paris rapeseed for February shed 0.8% to E366.00 a tonne.

US vs EU

But back to US exports, and while US data showed a sharp rise sales last week to 372,000 tonnes for this season, that was at the low end of market expectations, and not big enough to calm investors' nerves.

As the US Department of Agriculture put it: "Net sales of 372,200 tonnes for delivery during the 2013-14 marketing year were up 62% from the previous week, but down 12% from the prior four-week average."

Furthermore, on actual exports, while the US shipped 563,200 tonnes, up 53% week on week, that was still eclipsed by the European Union, which issued licences for 780,000 tonnes this week.

As an extra problem, as US Commodities said, "the technical trend remains bearish in wheat," with contracts struggling to find a floor.

Three-year low

One hope for wheat bulls is that contracts are now looking technically oversold, especially in Minneapolis, where the March spring wheat contract lost a further 0.7% to $6.68 a bushel, a fresh contract low, and the lowest finish for a nearest-but-one contract since July 2010.

(Most of Canada's crop is spring wheat, meaning last week's crop upgrade is particularly felt in Minneapolis.)

Paris wheat for January did better, shedding a modest 0.4% to E205.75 a tonne, helped by decent export data as well as by a softer euro.

Decent exports

Of course, corn was of little help, itself falling 1.1% to $4.34 a bushel for March.

That said, the close was well above the intraday low, of $4.28 a bushel, and, crucially from a technical perspective, kept the contract above its 10-day and 20-day moving averages for a seventh successive session.

Corn was offered support by decent export sales, of 695,000 tonnes of old crop and 109,000 tonnes of new, at the top end of market forecasts.

And a further 120,000 tonnes of US corn was sold to an "unknown" importer on the day.

'Near-record export demand'

There was plenty of talk about strong ethanol margins too, after weekly production data on Wednesday came in at the best in very nearly two years.

"US ethanol manufactures are seeing their best profit margins in more than five years," CHS Hedging said.

US Commodities said: "Near-record export demand for the dried distillers' grains, or DDGs, produced at ethanol plants also lifted margins to as much as $1 per gallon of fuel produced - the highest levels since before the Renewable Fuel Standard was instituted in 2007."

'Can invite demand'

However, the sting was taken out of such talk by an announcement that 10 senators had introduced a bill to eliminate the ethanol mandate altogether, rather than just reduce it as the Environmental Protection Agency is proposing.

And ethanol itself extended its decline in Chicago, tumbling 5.2% to $1.83 a gallon for January delivery, so eating into producers' margins.

And as for the strong corn export sales, this is "scenario that has little positive influence in a market that can invite demand" following a record US harvest, Benson Quinn Commodities said.

'Good exports is old news'

Exports for soybeans were strong too, at 1.11m tonnes of old crop, and a further 414,000 tonnes for 2014-15, well above market expectations.

However, the January contract closed down 1.2% at $13.11 a bushel nonetheless.

The trouble was that shipments to China, the top importer, made up a relatively small proportion, and may yet be cancelled if South America's crop turns out big, which currently looks likely.

"The issue with the soybean complex is that news of good exports is old news, and the most recent sales to China continue to be optional origin contracts and will likely be optioned to South America," Darrell Holaday at Country Futures said.

Benson Quinn Commodities said: "The trade is also trying to handicap the potential of US sales being shifted to South America or sales being cancelled."

'Will we ever bounce?'

Among soft commodities, raw sugar extended its losing run, falling 1.3% to 16.30 cents a pound in New York for March delivery, the lowest close for a spot contract in more than three months.

"Will we ever bounce in sugar?" Thomas Kujawa at Sucden Financial asked.

"It's hard to see an investable story to go long sugar at present. The problem for the bulls it seems is they have no credible/tradable story for the medium term."

'Bullish fundamentals'

However, cocoa regained the offensive, adding 1.2% to $2,787 a tonne in New York for March delivery, helped by concerns of a fall-off ahead in deliveries of beans to ports in Ivory Coast, the top producer and exporter.

"The bad start to the cocoa season in Ivory Coast would result in a decline in production next month," Vanessa Tan at Phillip Futures said.

"Therefore, we believe the bullish fundamentals of the market will prevail and support cocoa prices."

'Only a question of time'

And robusta coffee got back on the front foot, helped by data showing that stocks held for delivery against London futures had fallen to 31,420 tonnes as of December 9, the lowest since March 2009 and down more than 30% in two weeks.

The March contract rose 1.6% to $1,775 a tonne.

Not that all investors are too impressed, with Commerzbank saying that with Vietnam, the top robusta producer,  expecting a record 30m-bag harvest, it is "only a question of time" before soaring supplies will weigh on prices.

"The price differential between arabica and robusta coffee recently was at its lowest level since 2008, which is also unlikely to leave the demand side unscathed," the bank said.

"We can therefore expect to see lower robusta coffee prices over the next few months, partly because the arabica market is likewise amply supplied."

Still, arabica coffee did its best to try to rebuild its premium, gaining 2% to 111.30 cents a pound in New York for March.

Morning markets: corn futures shy away from technical battle
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