Have funds indeed had their fill of selling grain futures
There was some hope raised after regulatory data showed
sharp declines in hedge fund net long positions in Chicago corn, soybeans and wheat, reducing the overhang which has
played a big part in recent price falls.
And another factor is getting at investors too – resilient cash
'The farmer has shut
In soybeans, basis in Brazil "has firmed sharply", Kim Rugel
at Benson Quinn Commodities said, attributing the increase to "Everyone watching
the World Cup instead of selling soybeans".
"Firmer cash basis in Brazil and steady-to-firmer basis in
US imply the farmer has shut down and is not selling. This is sign of support.
"We will just have to wait and see if the futures market can
Certainly, soybeans for July managed a 0.8% gain.
That was sufficient to retake the psychologically important
$14-a-bushel mark, taking the contract to $14.09 a bushel as of 09:30 UK time (03:30 Chicago time).
That said, it was not enough to retake the 100-day moving
average, at nearly $14.16 a bushel, which was lost in the last session.
"July soybeans are back below the 100-day moving average for
the first time since February 3," one US broker noted.
"This could be significant enough to get more liquidation
since larger technical funds use moving averages for market direction."
Elsewhere, overnight, Dalian soybeans for January fell, but
not by much, easing 4 yuan to settle at 4,488 yuan a tonne.
Back in Chicago, new crop November soybeans were unchanged
at $12.12 a bushel as bull spreads, buy nearby lots and sell further ahead
ones, found some fresh appeal, an idea which gained further appeal with the prospect
of the US crop stocks report coming up at the end of the month.
This could issue a reminder to investors of the tightness of
US stocks, sapped by strong exports and domestic use, although there is some idea
that last year's US harvest was understated.
Jefferies Bache said that it was raising by 7m bushels to
1.737bn bushels its estimate for the 2013-14 US crush, with exports pegged at
1.626bn bushels, an upgrade of 20m bushels.
However, it estimated the 2013 harvest at 3.354bn bushels,
above the 3.289bn bushels the US Department of Agriculture has reported.
'Stuck in a
In corn, strong basis has attracted attention
"Nearby corn forward prices are stuck in a definitive
downtrend even as local basis in several areas of the US and the prompt spread continues
to strengthen," Christopher Narayanan at Societe Generale said.
"Corn demand remains stronger than expected in both the
export and ethanol markets."
If the divergence between basis and futures "continues for
much longer, this will shift our stance [on corn futures] from neutral to
bullish", Mr Narayanan said.
In fact, more will be known on ethanol later, with the
release of weekly US production data – and it should also be noted that the US
is fast approaching the June 21 deadline by which the Environmental Protection
Agency has indicated it will rule on the mandate revisions.
Still, for now corn for July added 0.5% to $4.40 ¾ a bushel,
outperforming the new crop December contract, up 0.2% at $4.40 ½ a bushel,
slowed by good US growing conditions.
In fact, it was wheat
which did best, in which there has been some strength in the US rail market, but
for which technical factors provided a big prop.
In the last session, the Kansas City hard red winter wheat
contract for July got back above its 200-day moving average, helped by a slow
US harvest and fears of damage from rain on ripe crops.
In gaining 0.7% to $7.17 ¼ a bushel on Wednesday it popped
back over its 10-day moving average too.
Did this signal that selling in wheat has peaked for now?
'Export wire active'
For Chicago contracts, this is especially important given the
large, if not extreme, net short position that hedge funds have built up.
And, indeed, Chicago wheat for July outperformed, adding
1.0% to $5.87 ¾ a bushel.
As an extra support, demand is turning up at lower prices,
with Tunisia buying 159,000 tonnes of milling wheat, optional origin, for
July-September shipment and Algeria in the market for durum wheat for December
"The export wire continues to be active on global basis and
this is providing some slowing to the seeming unending decline" in prices,
Citigroup's Sterling Smith said.
"There is little
reason to be in a hurry to buy the wheat. However, we should be getting close
to the point to where there will be fewer reasons to sell the wheat."
The rise in the Chicago row crops gave a little cheer to cotton, a rival in spring sowing
programmes, which nudged higher to 76.34 cents a pound, after ending the last
session at 76.32 cents a pound, a six-month closing low.
That decline was blamed on the improved conditions in Texas,
the top US cotton growing state, where drought has been such an issue.
"West Texas cotton, corn and sorghum areas will receive periodic
showers and thunderstorms over the next week, maintaining a highly favourable
environment for early season crop development," World Weather said.
Still, "net drying is likely over the coming week from
eastern and southern Texas to parts of eastern Missouri, far south western
Illinois and the Delta.
Also in the cotton belt "a small part of the region from
eastern Georgia to central North Carolina will see net drying".