Morning markets: ag futures crawl higher into February

New month, new money?

There is some idea that month-beginnings attract fresh fund cash, just as month-ends are associated with position closing.

But if there is new money heading into markets, it was hardly registering as of 09:25 UK time (03:25 Chicago time).

Indeed, the funds "seem to be on the fence as to what to hold in 2014", one US broker said.

China data

Shares remained somewhat under a cloud, making firm starts in Europe, but only after lower closes on what Asian markets are open, with many closed for lunar new year celebrations.

Tokyo's Nikkei index tumbled 2.0%, little helped by official Chinese data at the weekend showing a manufacturing index falling to a six-month low of 50.5, if remaining just in growth, while an index for non-factory activity set a multi-year low of 53.4.

That was hardly helpful either to prices of agricultural commodities of which China is a major importer, such as cotton, which eased 0.2% to 85.69 cents a pound in New York.

The squeeze on US certified inventories, for delivering against Ice futures, is waning too, with 158,211 bales now in store, more than double the number a week before.

Bird flu fears

Another major Chinese import, soybeans, was lower too, falling 0.3% to $12.78 a bushel for March delivery.

In fact, sentiment was little helped by a further death in China, in Guangdong, from the H7N9 avian influenza virus, which has taken a higher profile again, and particularly at this period of new year celebrations, when millions of people return home to see their families.

Market-wise, avian flu is associated with reduced chicken consumption and herd reductions, for demand or health reasons, with fewer birds meaning less feed demand.

Indeed, Hong Kong, which borders Guangdong, said last week it is to ban sales of live chicken for 21 days and is to cull some 20,000 birds to reduce the risk of infection from the mainland, where Zhongshan and Huizhou cities have also seen new cases, according to today's statement from Guangdong officials.

'Vessels begin to load'

Already, "the bird flu outbreak in China has cost 40m poultry farmers an estimated $3.3bn," CHS Hedging said.

And this against a background of strengthening ideas for supplies too, as the window for weather damage to South American crops closes.

Indeed, the Brazilian harvest is rolling on, providing supplies for Chinese buyers, and raising the threat of cancellations of import orders from the US.

"Brazil harvest proceeds earlier than usual as soybeans arrive at port and vessels begin to load for China," CHS said.

Soybeans were little helped by weak performances by both processing products, with soymeal for March down 0.3% at $424.70 a short ton, and soyoil for March shedding 0.6% to 37.41 cents a pound.

Oats ahead

Grains did better, and fittingly in China's new Year of the Horse it was oats which did better than corn and wheat, adding 0.4% to $4.07 a bushel for March.

Oats are being supported, for now by logistical problems in Canada, a major exporter of the grain, at a time when the US, a structural importer, has thin supplies, although the International Grains Council has cautioned over a reversal in prices eventually.

Corn could managed a more modest 0.2% rise to $4.35 a bushel for March delivery, with a broadly favourable outlook for South American weather offsetting some of the price support created by US farmer withholding of supplies.

'Cash markets still hungry'

"The cash markets are still hungry for additional corn and the way to achieve that will be through higher [prices]," said Ben Bradbury at Benson Quinn Commodities.

"Better producer sales are likely found from $4.35-4.50 a bushel, and with managed moneys short at a very manageable level, I don't see much of a reason to breakout beyond those levels."

In fact, hedge funds reduced by 7,200 lots to a little over 52,100 contracts their net short in Chicago corn futures and options in the week to last Tuesday, regulatory data released late on Friday showed.

"I would expect this market to continue to trade sideways between $4.10-4.50 a bushel for the foreseeable future barring any significant weather issues."

'Markets oversold'

Wheat added 0.1% to $5.56 a bushel for March delivery, amid some ideas that the downswing in prices, may have been overplayed, after a fall of 8% last month.

"With wheat markets oversold and showing signs that they have value, there's a good chance shorts in Chicago will be forced to cover some position," Benson Quinn Commodities said.

After, all, "in addition to excessively cold temperatures," which have threatened winterkill in the US winter wheat crop, "many key hard red winter wheat-growing regions have dealt with below-average precipitation over the course of the last couple months".

That threatens development once dormancy is broken.

CHS noted that technically, wheat had in the last session been "unable to establish fresh, new contract lows", a factor which had hurt bears' confidence and inspired profit-taking on short positions.


Back in New York, raw sugar futures, trading reduced hours on Monday, to align dealing with similar products it is acquiring through the purchase of NYSE Euronext, edged 0.3% higher to 15.59 cents a pound, extending their recovery of the last session on Brazil dryness concerns.

But how long can the rally last?

Luke Mathews at Commonwealth Bank of Australia noted a couple of hurdles to higher prices coming from India, one being that a fresh discussion on proposals for an export subsidy is expected this week.

"Separate reports suggest sugar production in India's main producing states will climb to a record high in 2014-15 as a result of favourable seasonal conditions and high plantings," he said.

Ice raw sugar trading will now start at 3.30am New York time (08:30 UK time), closing at 1pm, while arabica coffee futures will trade from 4:15am to 1:30 pm.

Evening markets: Brazil dryness sends coffee, sugar soaring
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