PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 21:12 GMT, Friday, 13th Dec 2013, by Agrimoney.com
Evening markets: grains dip as China corn import scare grows

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.

Soaring soymeal

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 for soy'

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.

'Eliminated commercial interest'

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 concerned.

"If China doesn't take DDGs, it now begins to compete with soymeal here at home."

Argentine weather fears

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 a bushel.

'Minor stress'

The heat in Argentina was seen as a little bit of a threat to corn too.

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 dominant theme.  

"This issue has virtually eliminated commercial interest in selling corn to China or loading vessels on current contract sales," Mr Holaday said.

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 a bushel, signally ending back below its 10-day and 20-day moving averages, which had been offering technical support.

'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 reducing.

"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 a bushel in Chicago, setting a contract low of $6.26 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 low.

'No let-up in the march south'

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.

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