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."
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
In Chicago, wheat
couldn't match that feat.
But, in closing down 1.1% at $6.12 ¾ 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.
"Canadian wheat with higher protein levels is becoming more
competitive as it crashes into an already-flooded marketplace," CHS Hedging
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
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
"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.
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
"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.
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 ¾ 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
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.
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.