PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 09:34 GMT, Wednesday, 18th Jun 2014, by Agrimoney.com
Grain futures revive, boosted by cash market resilience

Have funds indeed had their fill of selling grain futures for now?

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 markets.

'The farmer has shut down'

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 catch on."

Certainly, soybeans for July managed a 0.8% gain.

Technical signals

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.

Data ahead

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 definitive downtrend'

 In corn, strong basis has attracted attention too.

"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 a bushel, outperforming the new crop December contract, up 0.2% at $4.40 a bushel, slowed by good US growing conditions.

Chart sign

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 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 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 shipment.

"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."

Cotton stabilises

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".

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