Wheat felt a bit
of that coffee rush on Tuesday.
Arabica coffee itself
was actually pretty subdued, compared with the last session, when it soared 8%
on concerns over hot and dry weather in major producing areas of Brazil, the
top growing and exporting country.
New York's March contract set a fresh eight-month closing
high, in ending at 135.25 cents a pound, but that represented only a 0.2% rise
on the day, small beer compared with the 20% rise in the week to Monday.
Not that bullish talk is running dry.
"The previous optimistic forecasts of a coffee crop possibly
totalling over 60m bags are hardly tenable unless the weather changes in the
very near future," Commerzbank said, adding that the coffee market was "in
"However, there is no sign of the all-clear being sounded
anytime in the next few weeks, and the time before the real dry season begins
in April is running out."
'Major drops in condition'
It was wheat's turn instead to get a boost from a massive
dose of covering of hedge fund short positions, which as of a week ago numbered
a historically-high 153,000 contracts, and which some had warned could herald a price spike.
Chicago's March contract soared 3.7%, the best performance for
a spot contract in 10 months, to close at $5.84 ¼ a bushel, completing the first
four-day winning streak in four months.
The spur was in part weather related itself, with US
Department of Agriculture data overnight revealing declines in the condition of
the winter wheat crop in major Plains growing states, and in particular in
Kansas, the top producer.
"State ratings drops in Nebraska, Texas, Kansas, and
Oklahoma may have spurred some interest," CHS Hedging said.
"The winter wheat condition numbers out yesterday were
supportive as they indicated major drops in the condition in all of the major
producing states," Darrell Holaday at Country Futures said.
'Ripe for a rally'
However, the rally did not really take off until Canada
surprised investors by revealing a rise in wheat inventories 500,000 tonnes short of investor expectations.
In fact, while farm inventories were record high, a sign of
the logistical difficulties Canada is suffering getting crops from producers to
exporters and consumers, commercial inventories actually fell – a pattern
repeated across other crops too.
Whatever, "this market was ripe for a short-covering rally",
Mr Holaday said.
And while speculators have been particularly downbeat on
Chicago wheat, the buying mood spread elsewhere too, with Minneapolis spring
wheat for March adding 2.1% to $6.23 ½ a bushel, and Kansas City-traded hard
red winter wheat soaring 3.8% to $6.47 ¾ a bushel.
European contracts gained too, with Paris wheat for March
adding 1.2% to E194.25 a tonne, while London wheat for May jumped 1.6% to
£155.25 a tonne.
Corn vs wheat
Can the rally last?
One factor which may concern investors is that Chicago corn futures could not keep pace, if
adding a respectable 1.4% to $4.35 ¾ a bushel for March delivery.
A strong premium for wheat over corn in the autumn
encouraged a raft of US feed demand to switch grains, official inventory data in
January implied, fuelling significant underperformance by wheat futures last
There may be limits to the amount of premium that investors
are willing to let back into wheat prices.
'Will boost stress'
Certainly, corn futures themselves have weather concerns
underpinning prices, with the cracks spreading in the picture of benign South American
Informa cut its estimates for both Argentine and Brazilian
corn harvests because of adverse weather, while influential crop scout Michael Cordonnier warned over the threat to soybeans too.
"Dryness in Brazil which is supporting a rapid harvest may
be knocking top end off of production as late-planted soybeans come under
stress, and looks to be offering support [to prices]," Benson Quinn Commodities
US Commodities said: "While drier weather will allow early
soybean harvesting to progress very well across northern regions, increasing
dryness in central areas will boost stress on late-crop growth.
"Dry conditions could affect Rio Grande do Sul," a southern
area whose crop is later planted, as Dr Cordonnier too highlighted.
'Increase in farmer
Furthermore, "winter weather in the US continues to drop
snow on much of the Corn Belt slowing grain movement and firming nearby basis",
However, there is the implication of the record US harvest
last year to factor in, and the fact that producers still have plenty to sell.
US Commodities cautioned that "an increase in farmer selling
is expected" at these higher prices.
"This may limit a push to $4.50 a bushel."
'Quick start to
also gaining support from deteriorating ideas on South American weather, lagged
wheat too, if gaining a solid 1.6% to $13.13 ¼ a bushel for March delivery.
Early harvest yields in Brazil are, after all, "tracking at
or above expectations", Richard Feltes at RJ O'Brien said.
And on exports, "Brazilian loadings of soybeans are off to a
quick start with estimates that 400,000 tonnes have been loaded compared to nil
at this time last year", Benson Quinn Commodities said.
"Look for these factors to cap gains."
Corn vs soybeans
A big support was provided by a 3.0% gain to $447.00 a short
ton in Chicago soymeal futures for
March, also a reflection of the logistical delays caused by cold US weather.
Still, it was notable that new crop November soybeans closed
up only 0.2% at $11.10 ½ a bushel, and in fact lost ground against corn, the
oilseed's biggest rival for acres in the US sowings programme, which closed up
1.4% at $4.59 ¼ a bushel for the key new crop December contract.
That trimmed the new crop soybean:corn futures price ratio to
2.41:1, if still a historically large figure favouring sowings of the oilseed.
Back in New York, raw
sugar actually eclipsed arabica coffee this time, lifted by the same Brazil
As Agrimoney.com had mused might happen, raw sugar futures
got a boost from more covering of speculators' huge net short positions, and
closed up 2.0% at 16.06 cents a pound, now up 9.0% in four sessions.
Still, with world supplies still deemed healthy, "the market
consensus in sugar at this stage still seems to be viewing the recent news and
market strength as a short-to-near term correction to the long-term expectation
of still lower prices," Sucden Financial said.
It helped that India, the second-ranked sugar producer after
Brazil, again delayed a decision on subsidies for sugar exports which –
depending on their level – could bring yet more competition onto the world market.