Evening markets: spreading sinks wheat prices but lifts corn

By rights, it might have been expected to have been a strong day for wheat futures, and weak one for corn prices.

But it ended quite the opposite.

Wheat looked like it might extend its upswing, given concerns over damage from cold to US seedlings.

"Snow should remain limited in Kansas and central Nebraska, and some winterkill will be possible there by later next weekend," weather service MDA said, with snow seen as offering protection to seedlings from freezing temperatures.

"Very cold temperatures in the north central Plains will likely result in some winterkill damage to the wheat."

'Arctic blast'

As for how cold it will get, said that the "Arctic blast"- which "will become the dominating feature over North America over the next 10 days" in weather terms – will deliver temperatures as low as -20 Fahrenheit (-29 Celsius) in the Rocky Mountains.

While the Rockies are hardly a major growing region, temperatures in western Nebraska into the Dakotas could fall to -10 Fahrenheit (-23 Celsius).

At broker RJ O'Brien, Richard Feltes said: "South Dakota winter wheat could be at risk from late week Arctic blast."

'Attracted some buying'

Benson Quinn Commodities said earlier in the trading day: "The idea that the hard red winter wheat crop could be damaged by cold temperatures in the northern Plains has attracted some buying.

"The trade will use this as a talking point," the broker said, if adding that "the overall effects on the crop [of the cold] will likely be limited".

Last week's US wheat exports were hardly disgraceful either, at 15.5m bushels, up from 12.6m bushels the week before, and 14.7m bushels the previous year.

Nonetheless, soft red winter wheat futures in Chicago fell by 1.1% to $6.61 ¾ a bushel, for March delivery.

Their hard red winter wheat equivalent dropped less steeply, but fell nonetheless, by 0.5% to $7.09 ¼ a bushel.

'Seen as bearish'

Contrast that with corn, with offered fundamental reasons for selling, besides the record US harvest.

China worries revived, in part thanks to the report that mentioned earlier of authorities clamping down on a trade which has seen unscrupulous dealers buy imported corn at lower prices to sell into Beijing's high-price, government support programme.

This scam, also reported in soybean and cotton markets, attracted a "lot of talk", Darrell Holaday broker Country Futures said.

"China has reiterated this weekend that [such selling] is not allowed. This is seen as bearish."

'This is a problem'

Furthermore, fears appear to have proved realised that a trend was being set, when China last month rejected a cargo of imported US corn, on grounds of containing an unapproved GM variety.

"Another two cargoes of US corn have been rejected in China as they have a GMO trait that is not approved in China," Mr Holaday said.

"This is a problem as there is a lot of corn destined to China out of the US."

RJ O'Brien's Mr Feltes said: "The corn market is skittish on China's rumoured rejection of two additional US corn cargoes."

Spreads closed

But corn for March managed a recovery from early losses, setting a contract low of $4.18 ½ a bushel, to end at $4.24 ½ a bushel, unchanged on the day.

Strong weekly US exports didn't hurt, at 35.7m bushels, up from 30.3m bushels the previous week, and 10.5m bushels a year before.

Nor did a firmer ethanol price, which added 0.9% in Chicago to $1.713 a gallon for January delivery.

Still, what really appeared to be helping the grain was a wish by investors to take profits on their large net short in the grain – even if that meant closing spreads with other crops.

"Spread traders have been looking for an opportunity to take profits," broker US Commodities said.

And short corn-long wheat/soybean spreads have been common, and profitable, bets.

'Basis remains strong'

Indeed, soybeans too saw a sell-off dropping 1.2% to $13.21 ¼ a bushel for January delivery, despite some positive fundamentals.

"Soybean basis remains seasonally strong as crush margins are positive due to soymeal demand," Paul Georgy at broker Allendale said.

Benson Quinn Commodities said: "With outstanding export sales and profitable US crush margins, the trade is weighing what prices will be needed to ration future demand."

'Under pressure from improving weather'

But maybe a price not as high as some might expect, given the increasing idea of a strong South American harvest.

Soybean futures "are under pressure from improving weather in South America", CHS Hedging said, noting that "weekend rains in the Brazilian and Argentine growing areas aiding conditions" and that "favourable moisture is seen into next week".

A shift by buyers "to cheaper South American supplies is expected, while the profitability of Chinese crush margins should also be questioned going forward", Benson Quinn said.

In fact, Safras reported Brazilian sowings 88% completed, versus 86% last year and 85% on average.

And the US Department of Agriculture's attaché in Buenos Aires pegged the forthcoming Argentine crop at a record 57.5m tonnes, 4.0m tonnes above the department's official forecast.

Two-month low

Among soft commodities, raw sugar dropped too, down 1.0% to 16.97 cents a pound for March delivery, a two-month closing low for a spot contract, undermined by the end of a stand-off between mills and farmers in India over cane prices.

"We are fast approaching a situation in which there will be many [exporters] competing for export markets," Sucden Financial said, noting also that "there have been little signs of support in either the whites or the raws markets of late", referring to white sugar and raw sugar.

"Physical prices continue to be weak, showing reduced demand as we approach the end of the year and the end of the Centre South Brazil crush season."

White sugar in fact dropped 1.9% to $455.00 a tonne in London for March delivery, setting a contract low of $454.40 a tonne earlier.

Two-year high

But cocoa extended its recovery, helped by a hike to 160,000 tonnes, from 52,000 tonnes, in the International Cocoa Organization's estimate for the world deficit in 2012-13.

Cocoa for March added 0.9% to $2,813 a tonne in New York, for March delivery, earlier hitting $2,844 a tonne, the highest for a nearest-but-one contract since September 2011.

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