PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 20:53 GMT, Thursday, 9th Jan 2014, by Agrimoney.com
Evening markets: grains tumble again, despite looming data

The idea that agricultural commodities might stabilise ahead of Friday's slew of reports from the US Department of Agriculture took another beating.

It had appeared a quite reasonable theory that the uncertainty presented by the USDA reports on US grain stocks and winter wheat sowings, besides the monthly Wasde reports, coupled with the index fund rebalancing process might act as deterrents against further selling.

The index fund rejig, after all, apparently involves buying some 90,000 corn contracts alone, to plump the grain back up to mandated weights after the grain's dismal 2013 performance.

'Sharply disappointing'

But any reluctance to sell ahead of USDA briefings which are expected to turn out on the bearish side eg raising forecasts for US corn production and stocks in 2013-14, and for Brazil's soybean harvest evaporated, in grains at least, after weekly export sales data gave investors fresh cause to sell.

"Export sales across the ag complex were sharply disappointing with not only soybeans putting in a marketing year low but wheat and soymeal as well," Benson Quinn Commodities said.

Soybean sales last week, at 155,500 tonnes old crop, were "down 84% from the previous week and 80% from the prior four-week average", the USDA said.

Wheat sales were "down 55% from the previous week and 76% from the prior four-week average".

Sales of corn for 2013-14 of 155,300 tonnes, while up a little week on week were "down 79% from the prior four-week average", and like the others, well below market expectations.

Chinese purchases

Sure, there was some excuse in that the week included the New Year holiday.

And soybeans had some offsetting good news, with USDA confirmation, through daily alerts, that Chinese importers bought 110,000 tonnes of the oilseed, albeit for 2014-15.

(That said, the sale, of two cargoes, fell short of the four cargoes of business that the market rumour-mill had suggested.)

Furthermore, the oilseed had some support from a firmer soymeal market, up 0.4% at $414.30 a short ton for March, helped by a bottoming out in the market for rival distillers' grains, after its post-Christmas tumble.

'Weather is drier'

As an extra fillip, soybean prices on the Dalian exchange in China, the top importer of the oilseed, firmed overnight. RJ O'Brien contrasted the Dalian's "four-day gain of 51.5 cents per bushel versus the 2-cent three-day loss in Chicago".

And weather outlook turned a little more threatening in Argentina, offsetting some of the bearish pressure from an upgrade by Brazil to its harvest forecast.

"South American weather is drier in Argentina for the weekend. The weather forecast in Argentina has helped to support soybeans this morning," US Commodities said.

At RJ O'Brien, Richard Feltes said that the weather "leans positive" for markets, "with the scaling back of rains in both one-to-five and six-to-10 day periods".

Soybeans managed some gains, adding 0.4% to $12.73 a bushel in Chicago for March delivery, if falling just short of retaking the 200-day moving average.

'Very bearish'

The same could not be said for corn, which fell again, this time by 1.2% to $4.12 a bushel for March, equalling the lowest close for a spot contract since August 2010.

In fact, Brazil's Conab agency nudged higher its forecast for the domestic corn crop too, contrary to market expectations, given the incentive from prices for growers to focus on soybeans instead.

The upgrade was "very bearish for corn", said Darrell Holaday at Country Futures.

And a turn by producers to selling has hardly helped either.

"There has been a pick-up in cash movement as basis levels have not strengthened on the $0.20-a-bushel price break in futures," Mr Holaday said.

'Panic selling frenzy'

Poor chart signals from corn hardly helped either, after the March contract ended the last session below what he termed a "critical technical support level".

"After closing below the $4.17-a-bushel level yesterday, it opened the door to a large amount of long liquidation and some new technical selling.

"The ethanol inventory number started the sell-off yesterday, but when the market moved below $4.17 it has become a panic technical selling frenzy."

So much for support from the index fund rebalancing.

Hard vs soft

With corn tumbling, it was hard for wheat to perform much better.

And indeed it didn't, falling 0.8% to $5.84 a bushel in Chicago for March delivery, a fresh two-year low for a spot contract.

That said, interestingly, Kansas City hard red winter wheat maintained its outperformance, adding 0.2% to $6.39 a bushel for March.

While Chicago soft red winter wheat has fallen by 3.5% so far in 2014, hard red winter wheat has dropped a modest 0.3%, supported by concerns of damage from the US cold snap to seedlings in its central and southern Plains heartland, where some areas lack snow cover.

Furthermore, hard red winter wheat has shown signs of competitiveness on export markets, to judge by results from Egyptian tender last week.

Record Indian harvest?

Hard red winter wheat was also the beneficiary of what support there was by from a downgrade by the Buenos Aires grains exchange of 250,000 tonnes, to 10.1m tonnes, in its forecast for the Argentine wheat crop.

Brazil is turning to the US for its hard wheat needs, after finding it difficult to wrestle supplies from its neighbour.

Soft red winter wheat, meanwhile, had to grapple with talk of a record 100m-tonne Indian wheat harvest this year, and ideas that the country will be forced to lower its prices further to get shot of supplies.

'Some awful problems'

French wheat for March ended down 1.4% at E196.75 a tonne, a three-month closing low for the contract, which surrendered its 100-day moving average for the first time since then.

Prices have moved down to protect a decent export record, with European Union shipments topping 14m tonnes so far in 2013-14, compared with less than 10m tonnes a year ago.

March wheat tumbled in London in sympathy, by 2.4% to 156.85 a tonne, the contract's weakest close since September, and despite setbacks to UK wheat seedlings from heavy rains.

There have been "some awful problems in Oxfordshire with the ongoing wet weather today - many roads closed with all rivers bursting their banks", one trading house said.

"However nationally we still don't believe there is too much damage to the wheat crop in the ground. Yes, there are some isolated incidents but in the main, crops have got off to a great start and can withstand this weather."

'Bears sitting very comfortably'

Among soft commodities, arabica coffee, after some initial headway, dropped 1.3% to 119.35 cents a pound in New York for March delivery on some "buy the rumour, sell the fact" thinking.

While Conab forecast a potential drop in Brazilian coffee production this year, and a definite fall in arabica output, many investors had been prepared for this by broker reports earlier this week.

Raw sugar maintained its downswing, falling 1.7% to 15.48 cents a pound for March, the weakest finish for a spot contract in more than three years.

Sucden Financial noted how prices had "sliced slowly through the anticipated support levels like a surgeon with steady hands.

"Overall, the bears are sitting very comfortably in not just the sugar business but the wider commodity markets."

Indeed, separately, Black Rock said that commodity exchange traded products suffered their worst year on record in 2013, with $42.9bn withdrawn (albeit mostly from gold) as investors switched to shares.

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