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Evening markets: rebalancing hopes lift corn, coffee prices

Just how cold is it in the US?

"A bitter cold wave is under way this morning producing temperatures of minus 11 Fahrenheit in southern Illinois and Indiana and minus 25 F Fahrenheit Minnesota and North Dakota," Gail Martell at Martell Crop Projections said.

"A deep trough in the jet stream is responsible for the bitter cold.

"Wind chills of minus 30-35 Fahrenheit have forced school and business closings across the upper Midwest with the coldest temperatures since 1988, according to the National Climatic Data Center."

'Winterkill is occurring'

The issue for crop watchers is whether the cold will damage winter crops, notably wheat, which farmers have turned too increasingly for their 2014 harvest plans, encouraged by, relatively, resilient prices during the autumn planting window.

"US winter wheat planting is estimated at the highest in six years at 43.53m acres, [boosted by] improved soil moisture and high crop insurance guarantees," broker US Commodities said.

MDA cautioned that "some winterkill is occurring this morning across eastern Colorado, western and north central Kansas and much of Nebraska as snow cover remains rather thin there.

"This is affecting about a third of the Plains wheat belt, with significant damage likely occurring in about 10% of the belt, mainly in Nebraska and eastern Colorado."

Some "spotty" winterkill "is possible Tuesday morning across south eastern Indiana, south western Ohio and northern Kentucky, as snow there is a bit limited".

'Plants could suffer'

Commerzbank said: "In some areas, the lowest temperatures for 20 years are forecast for this week.

"Especially in the southern Great Plains and the Midwest, plants could suffer because there is not sufficient snow cover everywhere to protect them."

As an extra fillip to wheat bulls, investors are preparing for the rebalancing exercise by commodity index funds reweighting their portfolios back to mandated levels, meaning selling last year's top performers and buying losers, such as wheat, which fell 22% in Chicago in 2013.

"Grain futures are higher on short covering and anticipation of fund rebalancing," Chicago-based Allendale said earlier in the day.

Mixed news on exports

And that was before the US Department of Agriculture revealed the sale of 128,000 tonnes of US hard red winter wheat and 32,000 tonnes of soft red winter wheat to an "unknown" importer, albeit for 2014-15 delivery.

Still, the upbeat sentiment faded after the USDA also revealed weekly US wheat exports, as measured by cargo inspections, of 13.6m bushels, up some 200,000 bushels week on week but below market expectations and striking a raw market nerve.

Many investors are concerned that US shipments will fade, ideas only enhanced by the transport disruptions caused by the cold snap.

Chicago soft red winter wheat for March ended unchanged at $6.05 a bushel, not far above its intraday low, while hard red winter wheat itself gained 0.3% to $6.44 a bushel.

In Paris, wheat for March edged 0.1% higher to E202.50 a tonne.

for corn too

Corn did better, gaining 1.0% to $4.27 a bushel for March delivery, helped by its bigger claim to a boost from rebalancing. After all, Chicago futures tumbled 40% last year.

That helped to calm nerves amid backchat over Chinese cancellations of orders of US corn, and after some mixed export data of the grain's own.

While the US sold 110,600 tonnes of corn to Mexico for 2013-14, weekly shipments, as measured by cargo inspections, dropped to 19.3m bushels, below forecasts and the previous week's record of 28.7m bushels.

Furthermore, corn received some support from the revival of concerns over poor weather in Argentina.

'Moisture shortages and crop stress'

"Dry conditions remained over the weekend for Argentina with dry conditions forecasted for the next two days," before light showers reach northern areas on Wednesday and Thursday, US Commodities said.

MDA said: "Dry weather prevailed this past weekend, which maintained moisture shortages and crop stress."

While showers will provide some relief to northern areas, "more rains may still be needed [in Santa Fe and northern Entre Rios] to completely end dryness, and moisture shortages and stress will likely continue across southern Buenos Aires."

Soymeal factor

This was a boost to soybeans too, which added 0.4% to $12.76 a bushel in Chicago for March delivery.

And the oilseed - while not set to receive much support from the index fund rebalancing process, having performed relatively resiliently last year also had decent US exports to count on, of 56.4m bushels, well above the 43.7m bushels booked the previous week.

The figure was also "well above the expected range", CHS Hedging noted.

Furthermore, there was some easing off in concerns that Chinese rejection of US distillers' grain (DDG) imports would, in channelling more of the high-protein feed ingredient onto the domestic market.

"DDG values have dropped to levels that are causing competition for soymeal. The cancellation of DDGs by China has pressure on prices in the US," Paul Georgy at Allendale said earlier.

However, soymeal for March added 1.7% to $413.80 a short ton eased concerns on that score.

Bubbling coffee

In New York, arabica coffee continued to defy expectations of a drop below 100 cents a pound, soaring 4.0% to 121.00 cents a pound for March delivery.

In part this was down to expectations of buying during the index fund rebalancing, with the futures having lost 23% last year so needing purchasing to get back to appropriate weightings.

However, other factors played a role too, including technical ones, with the bean's ability to stay above key moving averages boosting investor confidence.

The March contract itself closed above its 100-day moving average in the last session for only the third time since October 2012.

On a continuous, ie front contract, chart, arabica coffee closed above its 200-day moving average for the first time since September 2011 (when it was more than twice as expensive as today).

Balancing act

Raw sugar for March managed a flat performance, closing at 16.08 cents a pound, amid ideas of some index fund buying, with futures down 16% last year.

This counterbalanced some of the more negative talk around.

"In the background lies the threat of increased raw sugar exports from India as authorities there wrestle with increased internal stocks, a weak internal market, a weakening currency and the difficulties faced by millers to meet cane payments based on a much higher price," Nick Penney at Sucden Financial said.

"Meetings are taking place to attempt to resolve this, at which government officials are attempting to give some kind of financial assistance to mills to enable them to export the surplus production."

Cotton for March added 0.8% to 83.63 cents a pound, supported by ideas of a sharp drop in Chinese plantings for the 2014 harvest in the top producing country.

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