Grains had a weak day, but it was actually raw sugar futures which set a
New York raw sugar for October ended down 1.6% at 15.68
cents a pound for October delivery, the weakest finish for a spot contract in
For the October contract itself, the drop meant falling
below a January nadir to set its lower finish ever, and down from levels
approaching 19 cents a pound in late June.
And this despite data revealing a further increase in hedge funds' net short in raw sugar futures and options, this time of 17,718 lots in
the week to last Tuesday.
Hedge funds have now turned from a net long position of more
than 150,000 contracts to a net short of nearly 18,000 lots, in just six weeks.
Plenty on offer
But any hopes of them appearing sated, or at least pausing
for breath, were undermined by the continued idea of ample supplies of the
"Brazil has harvested the crop rapidly and has made sugar
available to the market, and Thailand also continues to offer," Jack Scoville
at Price Futures said, highlighting the discounts this is prompting to
"Both countries are offering at negative differentials at
this time as Thailand especially looks to move production as quickly as
"Private sources speculate that they hope to finish sales
within the next 30-60 days as they do not have good enough storage there to
keep much inventory."
Does it pay to store?
On storage, Marex Spectron estimated that in Brazil, where
the likes of Cosan and Sao Martinho have underlined the appetite for
stockpiling sugar in hope of higher prices ahead, factory warehouses are full,
leaving producers facing higher costs of storage.
The London broker estimated movement to a third-party
warehouse at perhaps $15 a tonne, storage at maybe $2.50 per tonne per month,
and financing at a further $1.75 per tonne per month.
"So the total cost would look like 164 points for the five
months from October to March," on a cents per pound basis.
In fact, this is what the market is now incentivising, with
March futures down a more modest 0.7% at 17.64 cents a pound, a two-month closing
low for a nearest-but-one contract, and nearly 200 basis points ahead of the
Chinese buyers hold
Still, that is only beneficial for producers on a relative
basis, of course.
China, a major importer, did its bit to keep the flat price
by directing demand at its own large inventories.
"Reports out of China are that the China Sugar Association
is appealing to refiners there to restrict sugar imports, and that they have
agreed not to import more raws between September and December," Nick Penney, senior
trader at Sucden Financial, said.
"The only thing that may help the market is its oversold
condition, and that most traders seem to be bearish," which can be a contrary
It should also be
noted that hedge funds still have plenty of scope for raising their bearish
bets, with the record net short position at 88,140 contracts, in June last
On the grain markets, wheat
remained mired by the reduced tensions between Russia and Ukraine, easing
concerns over exports from a region which is large source of competitively
priced supplies of the grain.
Chicago soft red winter wheat for September dropped 1.6% to $5.42
½ a bushel.
That said, losses were focused in the Chicago contracts,
which as the speculators' favourite, enjoyed more of an upswing from last week's
Kansas City hard red winter wheat for September fell a more
modest 0.5% to $5.19 ¾ a bushel.
Indeed, there do remain some concerns over toxic fungal
residues in US crop, after the quality issues affecting the European Union and,
less so, the Russia harvest too.
"US soft red winter wheat farmers are dealing with 'head
scab'," a fungal infection of wheat, "which can result in vomitoxin," CHS
"This is a concern for spring wheat harvest as well as there
have been signs of head scab in early North Dakota cutting."
Minneapolis spring wheat for September actually fell 0.6% to
$6.08 ¼ a bushel, which could be seen as a relatively resilient performance
given mounting harvest pressure.
In Paris, wheat for November dropped 1.2% to E171.75 a tonne.
'Builds more premium'
It was the row crop movements which were perhaps more
intriguing, with corn giving up a
firm start to end sharply lower, by 1.5% to $3.71 ½ a bushel for December
delivery, while November soybeans
began softly and ended higher.
The strength in soybeans was attributed to the continuing
strong US market, with CHS Hedging saying that "soybean basis is showing 0.10-0.25
cents-a-bushel gains, after a strong performance last week that provided
support to futures".
Decent demand was highlighted by monthly industry US crush
data on Friday, and supplies in the eastern Corn Belt in particular are getting
hard to come by ahead of the harvest.
At Country Futures, Darrell Holaday noted the outperformance
of the September soybean contract, which closed up 1.2% at $11.15 ½ a bushel in
an effort to ration near-term demand.
"The strength in the soybean complex has been in the
September contract as it builds more premium versus the deferred contracts," Mr
'Heavy soybean infestations'
Still, soybeans for November ended up 0.6% at $10.57 ¾ a bushel,
as the ProFarmer tour of the Midwest found that not all US crops are in the strong
condition that investors have been relying on.
"In Urbana, Ohio the tour found heavy soybean infestations
with Japanese beetles," Mr Holaday said.
And, in fact, analysts foresee some scope for a drop in the soybean
condition rating when the US Department of Agriculture later releases weekly US
crop progress data.
The Farm Service Agency data on Friday are also continuing
to get some attention, with one broker cutting its forecast for soybean sowings
1.5m acres below USDA estimates.
Soybean stocks are seen ending 2014-15 at 369m bushels,
below a USDA estimate of 430m bushels.
Lower prices to come
For corn, the FSA data provoked a forecast of corn sowings
2.5m acres below the USDA estimate, and end 2014-15 stocks of 1.668bn bushels, below
the USDA's 1.808bn bushels.
While that was bullish, the market did a lot to inflate corn
futures last week, with five successive positive closes.
And, after all, there are still widespread expectations of
lower prices to come in the teeth of harvest.
"Have we seen a bottom in the corn? That is the common
question," Mr Holaday said.
"The quick answer is 'no' if you believe we will see a
record US corn corp."
In large crop years of 1994 and 2004, for instance, "we saw
a $0.20-0.30-a-bushel rally in August before moving to substantially lower lows
in the November-December period. "
Technically, corn at least managed to hold its 20-day and
20-day moving averages.
But on the downside, it traded beyond the range of the
previous sessions and closed down, a poor chart sign.