Are we there yet? At the bottom of the correction in grains
and oilseeds, that is.
The external market signs were not that promising early on
Monday, with the dollar adding 0.2%,
on ideas that the US Federal Reserve may restrict the flow of ultra-easy US
monetary policy, thus preventing less of a risk of currency debasement.
A stronger dollar makes dollar-denominated exports,
including many commodities, less affordable to buyers in other currencies.
And many raw materials eased early on, including London copper and Brent crude, down 0.4% at $110.86 a barrel as of 09:20 UK time (03:20
'Yield was pretty low'
However, agricultural commodities, which have largely proved
contrarian to the downside of late, kept up their contrary streak, but showing
This included New York raw
sugar, which stands itself not far above two-year lows, but which for March
delivery rebounded 1.0% to 19.03 cents a pound, helped by talk that the 2012-13 Thai sugar crop could
fall below levels previously expected.
"We are about to review sugar output again as we have got
lower cane production and the yield was pretty low. We could produce less than
the 9.4 million tonnes we expected earlier," Somsak Suwattiga,
secretary-general of Thailand's Office of Cane and Sugar Board, told news
"The major problem was a fall in the CCS (commercial cane sugar
rate) in the cane."
Sugar prices have been weighed down by the prospect of a
further world surplus in 2012-13.
In Chicago, grains and soybeans got off to a firm start too,
although it was unclear whether this was down to more than bargain hunting, and
the prospect of a key US Department of Agriculture report.
The USDA will on Friday release its latest key Wasde world
crop supply and demand report, for which expectations on domestic corn and soybean supplies have become increasingly bearish, as highlighted
by Informa Economics pre-briefing estimates on Friday.
However, given the record of the report in provoking limit
up or down moves in Chicago futures, in five of the last six years, there is a
belief that many investors will chose to take profits ahead of the Wasde – taking
profits meaning closing short positions, which have profited from recent price
Brian Henry at Benson Quinn Commodities said: "Further liquidation
remains a possibility.
But with the USDA report looming a corrective move higher
from oversold conditions could emerge as position squaring develops ahead of
'Argentina dries out'
In fact, many of the fundamental reasons which have pressed
on crop prices remain live.
South American weather, for instance, remains broadly
benign, with WxRisk.com forecasting that "Argentina dries out" over the next
week - dryness that farmers desire after persistent rains which continued in
parts of Santa Fe and Entre Rios over the weekend.
Meanwhile, in Brazil, where dryness has been more of an
issue, east central areas will see "heavy rains".
Luke Mathews at Commonwealth Bank of Australia said: "Favourable
moisture is forecast for southern and central Brazil over the next ten days
while drier weather in Argentina should allow farmers to complete their seeding
There is hope for rains in some dry US winter wheat areas
too, with WxRisk.com foreseeing "significant rain over much of central and eastern
Texas and central and eastern Oklahoma" later this week, with broader Plains
rains next week.
However, there is plenty of thought that the deteriorating
South American and US weather risk has been more-than-adequately priced in by
the fall in prices over the last month to six-month lows in corn and wheat and, temporarily, soybeans too in
the last session.
A focus in wheat, for instance, on modest US export sales data
released on Friday "is unwarranted considering the Christmas disruption", Mr
"More importantly, cumulative sales over the past four weeks
are up 107.5% year on year."
Lynette Tan at Phillip Futures was slightly more prosaic,
saying that "today, we may see some retracement of last week's losses in all
three grains markets as relative strength indexes show all three contracts are
close to or at oversold levels".
'Extreme example of
And certainly, prices rose in early deals, with Chicago
wheat for March adding 0.5% to $7.50 ¾ a bushel, and corn for March up 0.7% at
$6.84 ¾ a bushel.
Soybeans for March gained 0.5% to $13.74 ¼ a bushel.
Still, the doubts remain, given the fund liquidation evident
in data from Calpers, the giant California pension fund, showing a cut in
commodity holdings from $3.54bn to $1.56bn in one month.
"This may be an extreme example of fund liquidation but
shows the mindset of the investment community towards the commodity markets of
late," Kim Rugel at Benson Quinn said.
"Declining open interest over the past three months confirms
this mass exodus as well," she said, noting a decline from record large open
interest in soybean futures of 833,271 on July 17, falling to less than 550,000