Maybe the index funds made a difference after all.
Their rebalancing – the annual exercise in which they bring
portfolio weightings back to mandated levels, meaning buying 2013 losers, such
as grains – seemed to have made little difference during its week in action,
which ended on Tuesday.
Wheat prices tumbled
some 4% during the week, despite rebalancing meant to mean substantial
purchases of Chicago contracts.
And while corn
futures rose, there was nothing that could not be explained by US Department of
Agriculture revisions to estimates for domestic supplies of the grain.
Still, with the index funds gone, wheat got itself into even
Chicago's March contract tumbled 2.0% to settle at $5.67 ¾ a
bushel – the lowest finish for a spot lot since July 2010, and helped by the
sale of an estimated 4,000 contracts by funds.
Kansas City-traded hard red winter wheat matched it, in
dropping 2.0% to $6.19 ½ a bushel, finishing at the day low, and the weakest
finish in eight months.
Paris bulls may think themselves lucky in suffering only a
1.0% drop to E193.00 a tonne for March delivery (although not as lucky as
London investors, who saw prices nudge 0.2% higher to £156.00 a tonne, albeit
in low volumes).
Reasons for hope
The extent of the decline was, frankly, a little puzzling.
There had, earlier, been some reason for hope, with Benson
Quinn Commodities saying that "wheat markets are leveraging a more supportive
technical structure, oversold conditions and better global demand for wheat to
attempt a correction".
(An upward correction, that is.)
"There is talk that Brazil continues to shop for US hard red
winter wheat, which is in line with attempts by Brazilian millers to get the
government to agree to additional North American supplies being imported at a
lower tariff," the broker added.
And the US Department of Agriculture itself gave reassurance
on US wheat exports.
Prices were, traders said, weighed in part by a forecast by
India's farm minister, Sharad Pawar, that the country will harvest a record
100m-tonne harvest this year, although it has to be said it is not the first
time such a total has been mentioned.
Another reason given was Ukraine's announcement of a
63m-tonne grains harvest, largely wheat, although this too has been previously
Sure, Commodity Weather Group downplayed the risk to US winter
wheat seedlings from the latest cold spell.
But that was hardly unopposed.
MDA said that snow cover, important for protecting winter wheat
seedlings against frost, "remains limited in central and southern portions of
the Midwest", soft red winter wheat country.
"Snow cover is expected to remain limited in west central
areas, and winterkill threats will increase in west central Indiana and central
Illinois, mainly next weekend."
In the Plains, hard red winter wheat country, "the continued
drier pattern will allow moisture shortages to build further", which is not
such an issue from a development perspective with the crop dormant, but could
be if it means no snow blanket in low temperatures.
At Country Futures, Darrell Holaday explained wheat's
unpopularity so: "There simply is very little buying interest in the corn and wheat, and the trade attitude
is to buy soybeans and sell anything
"That is exactly what is going on."
Certainly, corn ended lower, down 1.3% at $4.25 ¾ a bushel
in Chicago for March delivery, back below its 50-day and 20-day moving averages,
if remaining above its 10-day line.
Mr Holaday said: "The corn market was not helped by the
[ethanol] data," which showed output falling last week by 51,000 barrels a day,
the largest fall on record – although that was actually down to logistical
factors caused by cold rather than any weakness in producers' desire to churn
out the biofuel.
Also ranged against corn was the continued talk of fresh rejections
by China of cargoes of US distillers'
grains, a high-protein feed ingredient made as a byproduct of ethanol
manufacture, which has got caught up in the furore over contamination with a
GMO corn variety.
That said, as Allendale noted, "we have no confirmation" of
the rejections, and cash bids for distillers' grains in US Gulf of Mexico ports
"were steady late yesterday".
The same could not be said for the cash market for corn
itself, which has been attracting producer selling.
US Commodities said: "Cash corn basis was a couple of cents
lower. Clinton and Cedar Rapids corn basis bids have weakened 15-18 cents a bushel
'Cutting harvest estimates'
Meanwhile, the grain still struggled to gain any traction
from concerns over heat and dryness in Argentina, even though it is striking in
the sensitive pollination period in some areas.
"Dryness in the southern growing areas of Argentina has many
cutting harvest estimates between 18.0m-25.0m tonnes," compared with a USDA
estimate of 25m tonnes, CHS Hedging said.
US Commodities, estimating that 40% of Argentine corn is
pollinating, said that "the hot and dry conditions continue to stress the crop
and questions persist over the potential for a double crop in the southern
"February outlook for Argentina currently has hot weather
persisting. If the warm pattern were to continue, this could harm yield
potential for Argentine corn during pollination stage."
however, did gain some support from the Argentine weather.
"The hot and dry conditions continue to stress the crop,"
"Soybeans are finding support from weather concerns in South
America and Chinese demand."
In fact, the USDA, besides offering some reassurance over US
soybean exports to China, also unveiled the sale of 106,000 tonnes on this
route, albeit for 2014-15.
And US demand for soybeans was shown resilient too, with the
National Oilseed Processors Association pegging the crush last month at 165.4m
bushels, at the top end of market expectations, and a record.
March ended up 0.8% at $13.84 a bushel, a fifth successive winning session.
It helped that the products gained too. Soymeal gained 1.0%
to $434.50 a short ton for March delivery, helped by a strong performance by
futures on China's Dalian exchange overnight.
Furthermore, soymeal prices "are being supported on ideas that
US soybean supplies for crush will be constricted the second half of the season",
said Anne Frick at Jefferies Bache.
Soyoil for March
gained 0.6% to 37.99 cents a pound, despite the NOPA data showing US stocks of
the vegetable oil at 1.68bn pounds, up from 1.486bn pounds the month before and
above market expectations for a 1.555bn-pound number.
Still, rival vegetable oil palm oil helped by rising overnight in Kuala Lumpur, by 1.2% to
2,524 ringgit a tonne, its first winning session of 2014.
Among soft commodities, raw
sugar's decline accelerated, as New York's March contract closed down 1.7%
at 15.23 cents a pound, the weakest close for a spot contract in three and a
The decline was attributed to technical factors, as futures
tumbled below chart support areas at 15.34 cents a pound and 15.28 cents a pound,
as well as continued pressure from data on Tuesday showing a strong finish to
the cane crush in Brazil's Centre South.
Cocoa was mixed,
as strong European cocoa grind data felt a drag from weak Malaysian volumes.
London cocoa for March added 0.2% to £1,751 a tonne, but New
York's March contract eased 0.1% to $2,748 a tonne.
And New York arabica
coffee dropped 1.7% to 117.20 cents a pound for March, amid waning ideas of
support from lower expectations for Brazil's harvest.