PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 20:53 GMT, Wednesday, 18th Dec 2013, by
Evening markets: sugar, wheat lead ag prices downward

For many assets, Wednesday proved a bit of a relief, given that it brought news that the Federal Reserve is to start "tapering", yet without provoking market meltdown.

The Fed is to cut its monthly asset purchases by $10bn a month to $75bn a month, the start of a withdrawal of easy monetary policy which many investors have been concerned of, but which passed off pretty well on the day in many markets.

Wall Street shares stood 1.2% higher in late deals, while commodities, as measured by the CRB index, added 0.2%, encouraged by a failure of the dollar to spurt higher despite the tougher US monetary policy stance.

A stronger dollar undermines prices of dollar-denominated commodities by making them less affordable to buyers in other currencies.

'A little forlorn'

But among agricultural commodities, the day began more grimly than it started, with raw sugar, for instance, giving back early headway to close down 0.4% at 15.89 cents a pound In New York for March delivery, the weakest close for a spot contract since June 2010.

"Bulls are continuing their rear guard action, with stories of possible restocking in Russia and the Far East and also possible adverse weather and a frost in southern China," Tom Kujawa, co-head of the softs department at Sucden Financial, said.

"But at the moment it all seems a little forlorn."

'Money-printing machine'

Technically, "the bears have a trend channel in the price action that looks like it's been a money-printing machine for them since 19 cents a pound, with constant new lows".

Even after a record turn bearish in positioning in the week to last Tuesday, hedge funds retain scope for many further short positions without running up against historical highs.

Fundamentally, prices are being undermined by ideas of strong supplies, which have been supported by an upgrade by Unica to its hopes for the Brazilian Centre South cane crush, and by decent signs for Indian and Thai production too.

In London, white sugar for March dropped 0.6% to $433.40 a tonne, its lowest close since May 2010.

Eighteen-month low

In Chicago, wheat couldn't match that feat.

But, in closing down 1.1% at $6.12 a bushel for March delivery, the 10th negative close in 11 sessions, the lot set a fresh contract closing low.

It was also the weakest finish for a spot contract since June last year, and took losses this month above 6%.

The trouble is a dearth of demand or at least, confidence that US wheat exports can find buyers at these levels against a huge crop north of the border.

'Already-flooded marketplace'

"Canadian wheat with higher protein levels is becoming more competitive as it crashes into an already-flooded marketplace," CHS Hedging said.

At Country Futures, Darrell Holaday said: "Wheat continues to struggle with the lack of export news that involves the US."

Benson Quinn Commodities said: "Wheat markets, although technically oversold, remain on the defensive, pressing to new lows as fund selling continues and positive demand news is scarce."

US Commodities differed a bit by flagging "speculation stockpiles of the grain will continue to expand amid prospects for a record world crop".

Logistical squeeze

In fact, the situation is not quite so simple, with one major European commodities house noting that US prices have "on paper, dropped to below French and Black Sea levels".

Indeed, Paris prices have been surprisingly strong, falling by just 0.2% on Monday to E207.50 a tonne, taking losses this month to a modest 1.1%.

"However, there are always other factors to consider," the commodities house said, noting that "US continues to load corn and soybeans in some sort of style", interfering with the ability to ship wheat.

"Elevation remains a problem."

How long Paris prices can stay high, well, European Union export data on Thursday may prove a key input.

'Somewhat negative'

Wednesday brought some data for corn, with weekly US ethanol production statistics, which were broadly perceived as price negative, showing output of the biofuel down 16,000 barrels a day to 928,000 barrels a day, with inventories rising too.

"The EIA weekly energy numbers were somewhat negative for corn as weekly production dropped almost 2% from the previous week," Country Futures' Darrell Holaday said.

"But the most negative number was the ethanol stocks number which moved up 15.6m barrels - not good when production is decreasing."

That was an inventory rise of 177,000 barrels week on week.

'Market remains shaky'

While ethanol itself, which tumbled on last week's bumper production figure, saw some positive in the numbers, rising 0.1% to $1.822 a gallon in Chicago for January delivery, investors were less generous for corn.

Especially when Chinas rejection of some US corn cargoes, on grounds of containing a genetically modified variety unapproved in Beijing, is causing some concern.

"The market remains shaky as trade anticipates additional Chinese cancellations are forthcoming," Benson Quinn Commodities said.

Some 600,000 tonnes have been rejected so far, according to Shanghai-based JC Intelligence.

'Some stress'

Corn for March dropped 0.4% to $4.25 a bushel, with waning concerns over an Argentine dry spell also playing a role.

"Argentine corn areas will see some stress on the corn crop and reduced soil moisture, but this may aid final planting," CHS Hedging said.

And waning weather concerns were a factor for soybeans too, which dropped 1.6% to $13.13 a bushel for March delivery, closing back below their 20-day moving average.

While markets showed "some early support in the corn and soybeans from a drier outlook in Argentina in the 8-15 day period, the EU model does not agree as it indicates a return of significant moisture during that time period," Mr Holaday said.

'Hot or very hot temperatures'

It has to be said, there is some dispute over interpreting the Argentine weather outlook, with Jefferies Bache said that a "very strong jet stream and weak to moderate upper level ridge is promoting, and will promote, hot or very hot temperatures and little rainfall north of where the jet stream is located".

In short, "this means corn and soybean areas of Argentina will be hot and dry for a while".

Still, if investors needed encouragement to sell, it came from the lingering concerns that South American conditions are favourable enough to encourage Chinese importers soon to start ditching orders of US soybeans for cheaper ones from further south

"The trade is anticipating 1m-2m tonnes of soybeans will be cancelled at some point this winter," US Commodities said, a forecast "which has prevented the soy market from moving through resistance areas".

Certainly, it was signal in this session and the last that the January contract failed to linger long at the psychologically important level of $13.50 a bushel or above.

Mixed coffee

Back among soft commodities, robusta coffee fulfilled expectations of research group Cepea by showing weakness, closing down 1.0% at $1,699 a tonne in London for March delivery.

That fall, for a third successive session, has put the lot back close to its 100-day and 20-day moving averages, signalling a potential technical battle on Thursday.

But arabica coffee maintained its upswing, gaining 1.6% to 115.95 cents a pound in New York for March delivery, helped by talk of some damage in key Brazilian coffee growing regions from heavy rains, and with the bean's reduced premium over robusta coffee spurring talk of a demand switch back.

In New York, cotton, on which Macquarie remains sanguine despite the market's China concerns, added 0.1% to 83.00 cents a pound for March delivery.

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