There is an adage in Chicago that "nothing good happens in
grain markets between Thanksgiving and the January crop report".
(The report in question is the US Department of Agriculture Wasde
briefing, due in 2014 on January 10.)
Whether it is coming true this year, well, that depends on
what side of the fence you are.
Friday 13 certainly bought its fair share of bad luck to
agricultural commodity investors.
And not all were the bulls who have been under the cosh so
far this month.
In soymeal, the
December contract briefly soared 11%, to a contract high of $510.00 a short
ton, as holders of short positions scrambled to exit on the last day of
trading, with the lot (and other Chicago December contracts) expiring.
The lot settled up a mere 0.8% at $426.90 a short ton,
helping the January contract end 0.6% higher at $432.60 a short ton.
Indeed, all excuses for upward pressure were welcome by
bulls in the feed ingredient when it, and other ags, faces pressure from some
bad news from China, in the rejection of US corn deemed laced with an unapproved genetically modified variety
of the grain.
"Concerns over Chinese corn rejections and potential cancellations
continue to circulate and pressure prices," CHS Hedging said.
'May become a trend
As ever in ags, a setback in one crop is sending often
unexpected ripples across many markets.
The soybean pit is one of these.
US Commodities highlighted "continued speculation that China
may reject more shipments of US corn after turning away 180,000 tonnes.
"Soybean traders are worried that this may become a trend
for soy exports," especially with high hopes, so far, for South American crops.
(Of which more below.)
Rejected, or not?
And soymeal is another, via another chain of logic.
One of the more recent worries is that distillers' grains,
or DDGs, a high protein feed ingredient produced as a byproduct of corn ethanol
manufacture, will also be rejected by China.
"China is holding a US vessel to test DDGs for GMOs," CHS
said, adding that "the containers have not been officially rejected".
Others say that some DDGs too have actually been denied access.
Darrell Holaday at Country Futures said that he was "receiving
more reports of rejected cargoes of corn in China and also confirmation that a
cargo of DDGs was also rejected".
Another brokers flagged talk that 4,000-5,000 tonnes of DDGs
are being held in quarantine, pending results of testing for the unapproved
GMO, a Syngenta variety known officially as MIR 162.
The connection of DDGs to soymeal is that they are alternative
protein sources in the feed mix.
At Chicago-based broker Allendale, Paul Georgy said: "Talk
of possible DDGs being cancelled by China has soymeal and soybean traders
"If China doesn't take DDGs, it now begins to compete with
soymeal here at home."
Still, besides the short squeeze in the December contract,
soymeal, and soybeans, also got help to resist the China fears by forecasts for
hot weather in Argentina, which put a bit of a dent in the picture of benign South
American weather which has dominated so far in the growing season.
"Argentina is seeing dry weather and temperatures in the 80s-90s
degrees Fahrenheit in the major growing areas," CHS Hedging said.
Country Futures' Darrell Holaday said: "We are going to see
warmer temperatures, into the 90s, in Argentina this weekend and that has
prompted some buying."
However, he added that "the overall forecast remains non-threatening
with timely rainfall and moderate temperatures".
Soybeans for January closed up 0.3% at $13.27 ½ a bushel.
The heat in Argentina was seen as a little bit of a threat to
Weather service MDA said that "heat next week may add some
minor stress to corn".
But the rejection of US exports by China remained the
"This issue has virtually eliminated commercial interest in
selling corn to China or loading vessels on current contract sales," Mr Holaday
As an extra challenge, there is the bill that US senators
unveiled on Thursday to eliminate the corn ethanol mandate, on grounds that it has
pushed up the cost of food and is damaging the environment.
While the bill is given little chance of success getting
passed, corn for March closed down 2.0% at $4.25 ½ a bushel, signally ending
back below its 10-day and 20-day moving averages, which had been offering
'Snowfall is adequate'
With corn on such bad form, wheat had little chance, even though it is already setting contract
lows and deemed by many investors as oversold.
The US Department of Agriculture did little to help by
highlighting Canada, with its huge by relatively low quality harvest, as a
competitor in lower protein wheat export markets than usual, raising a rival to
the likes of US and French softer wheat supplies.
Meanwhile, fears for cold weather damage to the US crop are
"Snowfall is adequate to protect from any winterkill issues,"
US Commodities said.
Soft red winter wheat for March closed down 0.8% at $6.28 ¾ a
bushel in Chicago, setting a contract low of $6.26 ½ a bushel earlier.
In fact, spring wheat - which has been under particular pressure,
comprising the bulk of the Canadian crop – outperformed in falling a more
modest 0.5% to $6.64 a bushel for March, if still falling to its own contract
'No let-up in the
Many soft commodities reported losses too, with a large
delivery, of 74,590 tonnes, against the expiring December contract in London
keeping a lid on cocoa.
March cocoa eased 0.1% to £1,767 a tonne in London, and by 0.5%
to $2,774 a tonne in New York.
And raw sugar
maintained its knack for negative closes, ending down 0.2% at 16.27 cents a
pound for March delivery, the 21st finish in the red in 24 sessions
"Despite a very oversold technical position, there seems no
let-up in the march south for the sugar market," Nick Penney, senior trader at
Sucden Financial, said.
"The pattern of early recovery and late sell-off continues,"
as well it might under the weight of bad news including apparently decent late
season Brazilian sugar production, the onset of the Thai cane harvest and negative
import margins in China, often a huge buyer of the sweetener.
"Stock levels are now thought to be high enough there to
preclude any further building in the short term," Mr Penney said.
But robusta coffee managed fresh gains, adding 1.2% to
$1,799 a tonne in London for January, backed by continuing concerns over the
shortage of short-term supplies, with Vietnamese farmers slow to sell.