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Evening markets: US export data cheer up corn, but not wheat

What will it take to get investors out of their grump with wheat?

Thursday provided some cause to question the idea of a declining US wheat export performance which has been a key comfort to bears who have been feasting on the grain, driving prices to a succession of contract lows in Chicago, Kansas City and Minneapolis, the main US markets.

Yet still US futures fell, to further contract lows.

Sales soar

The US Department of Agriculture reported weekly US export sales of 656,100 tonnes last week, plus 3,000 tonnes of 2014-15 crop – the strongest performance since September.

"Net sales for 2013-14…. were up 76% from the previous week and 47% from the prior four-week average," the US Department of Agriculture said.

Furthermore, the figure was well ahead of expectations of at best 400,000 tonnes.

"Corn and wheat markets have been begging for some good news," Darrell Holaday at broker Country Futures said.

"They received a small dose of it this morning as the export sales were supportive."

'Brazil needs wheat now'

And there is reason to expect more demand from Brazil too, with fears growing that neighbouring Argentina is going to offer only limited, if any, exports.

Brazil's biggest flour milling group, Moinho Pacifico, said on Thursday that it had received notice that an Argentine trader would not be able to meet delivery of a contract for January.

"Brazil needs wheat now and will have to shop elsewhere if Argentina can't deliver," Paul Georgy at Chicago-based broker Allendale said.

Minneapolis-based Benson Quinn Commodities said: "Difficulties should push Brazilian interest back to US hard red winter wheat."

Prices drop anyway

OK, Strategie Grains forecast a 2% rise in European Union soft wheat output next year, but that was hardly unexpected, with sowings up by 4%.

(Besides, the UK trimmed its estimate of the latest crop by 200,000 tonnes.)

Yet still wheat, besides spending much of the day in positive territory, could not end there, closing down 0.3% in Chicago at $6.10 ¾ a bushel, a fresh contract finishing low.

It was the lowest close for a spot contract in 18 months, as it was for Kansas City hard red winter wheat for March, which ended down 0.2% at $6.52 ¼ a bushel.

Paris vs Chicago 

One factor working against US prices was a tumble in exports themselves, by 33% week on week to 376,500 tonnes, which played to concerns about capacity constraints, as exports struggle with huge volumes of soybean shipments (1.57m tones) and corn volumes (693,400 tonnes).

The European Union again outshone its competitor across the Pond, issuing export licences for a mammoth 818,000 tonnes this week, which helped steady Paris prices.

There, the January lot closed up 0.4% at E208.50 a tonne, while London wheat added 1.2% to £164.50 a tonne for January, lifted also by the UK crop downgrade.

Furthermore on the negative side, the Western Australia crop received an upgrade, boosting the prospect of competitiveness from that country – which also won a high-profile Iraq tender for 350,000 tonnes.

Technical pressure

And technically, US wheat futures appear currently beyond redemption.

"Technical momentum in wheat continues to add to ideas that plenty of supply is available and the matter that US wheat is not competitive on the higher profile tender," Benson Quinn said.

"All three wheat markets [Chicago, Kansas City and Minneapolis] have experienced multiple days of speculators willing to sell into oversold conditions.

"New lows for the move have been a daily occurrence, which allows the weak technical momentum to build."

It may little have helped the technical picture that wheat futures traded an outside day, ending lower, nearly at their intraday lows in fact.

'Commercial pressure'

For soybeans, something of the opposite seems to be occurring, with chart signals keeping the oilseed in investors' good books, despite some poor export sales data.

The US sold 415,500 tonnes of soybeans for 2013-14 last week – a low for the marketing year and well below expectations of at least 700,000 tonnes.

Furthermore, the figure factored in a big decrease reported for "unknown destinations", which might have been expected on another day to trigger concerns that the cancellations of Chinese orders of US soybeans have begun, as expected in the face of a strong and looming South American crop.

"There appears to be commercial pressure on soybeans to reduce exposure in case China begins to cancel soybean cargoes, as it has with corn," US Commodities said.

'Beware of the GFS model'

Still, in the oilseed's favour was that the actual exports of 1.57m tonnes included 900,000 tonnes to China, helping support the idea that even if cancellations do come through, there will be relatively little to cancel.

Furthermore, ideas of a huge South American crop are coming a little into question with heat and dryness in Argentina.

Sure, "the GFS weather model… for the Argentine production areas indicates a wetter pattern after Christmas," Country Futures' Mr Holaday said.

But Commodity Weather Group urged investors to "beware of the GFS model on Argentina".

"Argentina is in for net drying over the next two weeks," Richard Feltes at RJ O'Brien said.

Soybeans for March added 0.4% to $13.19 a bushel, nearly regaining their 10-day moving average.

'Increase stress'

For corn, the Argentine weather was seen as bigger, if not huge, threat with numerous mentions of crop "stress".

"Argentine corn areas are forecast for temperatures in the 90s to 100s Fahrenheit with light scattered showers seen late this week into early next week," CHS Hedging said.

"Soil moisture reductions and hot temperatures should increase stress on the developing corn crop."

US Commodities said, exactly, the same: "Soil moisture reductions and hot temperatures should increase stress on the developing corn crop."

Combined with solid weekly export sales of 827,000 tonnes, ahead of forecasts of 550,000-750,000 tonnes, and ideas of speculators closing short bets in corn in favour of shorts in wheat, corn for March closed up 1.3% at $4.30 ½ a bushel.

'Make good some ground'

Although grains' underperformer, wheat, failed to buck up its act despite decent trade news, soft commodities' latest dunce, raw sugar, did closing up 1.6% at 16.15 cents a pound for March, helped by Indonesia's issue of import licences and plans to stockpile 300,000 tonnes.

"We are confident that raw sugar prices will be able to make good some ground again in 2014," Commerzbank said, without expanding on its reasoning.

However, there are plenty of commentators who have cautioned against betting on values falling too far below 16.00 cents a pound, a level expected to spur end user interest.

'Sell-off sharply'

But robusta coffee fell 0.9% to $1,684 a tonne in London for March delivery, on ideas of supplies in Vietnam freeing up, and with Macquarie the latest to caution that the "unusual and sharp rally" prices looks unsustainable, in being based on withholding by producers with a huge crop to sell.

"We believe the sharply inverted robusta futures forward curve is mispriced and will likely soon attract more stocks onto LIFFE, as well as greater selling from Vietnam, which after all nearly finished with a harvest that could be a massive record crop," Macquarie's Kona Haque said.

"At the first signs of physical selling we would expect the robusta market start to sell-off sharply – and bring down with it arabica."

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