Got vertigo yet?
The rally in agricultural commodities, which has driven
futures in the likes of corn, wheat and sugar to multi-month tops in February, and cocoa and coffee to
highs measured in years, while taking oats to their most expensive ever, notched
up another win on Thursday.
In Kuala Lumpur, palm
oil recorded a fresh 17-month high.
The rises come amid fresh talk of "risk on" and "risk off"
trading, where prices of risk assets such as equities and commodities
rise and fall on movements in the same tide of money.
At Iowa-based crop broker Market 1, Mike Mawdsley flagged
talk that "gains in a host of markets were attributed to risk on" thinking.
"Remember the old days when funds bought every day? Not sure
how long this will last, but if they buy, markets go up. Sometimes it is that easy."
Weak China data
However, the idea of close correlation between the likes of
shares and agricultural commodities received a dent in their reaction on
Thursday to soft data on Chinese manufacturing.
The preliminary, or "flash", reading of HSBC's closely purchasing
managers' index for China indicated that factory sector activity hit a
seven-month low of 43.8 in February, below expectations, besides showing
Shares struggled on Asian markets, closing down 2.2% in
Tokyo, while shedding 0.2% in Shanghai and 2.3% in Hong Kong.
In Europe, London stocks traded down 0.6% in early deals,
and Frankfurt shares fell 1.3%.
Palm oil vs soyoil
However, agricultural commodities were, broadly, positive
with palm oil at its 17-month high of 2,748 ringgit a tonne as of 09:40 UK time
(03:40 Chicago time), a gain of 1.5% on the day.
The vegetable oil was helped by further signs of strong Malaysian
exports so far this month, with Intertek pegging the increase at a hefty 16.9%,
albeit representing a slowdown on the bumper rates seen for the first 10 days
of the month.
This at a time when concerns over impact of drought on
Brazil's soybean crop has dampened expectations for supplies of rival vegetable
oil soyoil, raising its price.
Chicago soyoil for May was 1.0% higher at 40.93 cents a pound, up 8% so far
"The widening palm oil discount to soyoil has propped up the
demand for palm oil as consumers switched between the vegetable oils for food
and fuel uses," Phillip Futures said.
'Will keep supplies
And there are some production concerns too.
While output is typically low at this time of year, dryness
in parts of Indonesia and Malaysia, which some are linking to the El Nino which
could be making a return, is raising fears about production when the seasonal
upturn kicks in.
"The low production cycle during the January to February
period, coupled with the prevailing El Nino phenomenon, will keep palm oil
supplies tight," Phillip Futures said.
Furthermore, "this year's newly-matured crops are expected
to be low due to low volume planting during the growing seasons from several
years back", the broker added.
That said, it is worth remembering that Standard Chartered,
taking a more cautious view of palm oil prices, has clocked talk of a 10% rise
in Indonesian palm oil output this year, putting it at about 30m tonnes, with
Malaysian production seen rising by 2%.
In Chicago, the strength in vegetable oils was reflected in
values of soybeans themselves, which
gained 0.3% to $13.58 ¾ a bushel for March and 0.4% to $13.47 a bushel for the
This despite softness in soymeal, down $0.10 at $436.14 a short ton, as warmer US weather
frees up logistics and helps supplies get through.
That said, direction later in both contracts may be
determined by the South American weather outlook, and the prospect of further dryness
in Brazil, besides by the announcement of any further Chinese cancellations of
orders of US supplies to switch demand to South America.
In fact, there has
been talk of China buying US soybeans of late, but for 2014-15 delivery.
There is also the US Department of Agriculture Outlook conference starting today to factor in.
Softer export demand?
However, grains eased a touch, with some ideas that wheat's
winning spell may have gone far enough for now, without the chances rising of
cold US weather next week provoking winterkill.
Jonathan Watters at Benson Quinn Commodities highlighted a
lack of export talk on wheat.
"After a nice run of export demand in January, it doesn't
feel like we are seeing much follow through at these much higher levels on the
board," he said.
Egypt's Gasc agency "hasn't tendered in several weeks, and the
other big buyers in 2013-14, Brazil and China, have been quiet or absent
While there has been talk of demand for hard red winter
wheat, "it hasn't materialised on the sales reports – at least not up to this
The driving force behind the wheat price rally "continues to
be speculative short-covering, with several of the most bearish commodity
markets in 2013 seeing big buying this week", Mr Watters added.
"It large speculators are determined to exit short commodity
positions, there is nothing saying prices won't continue to move higher over
the remainder of the crop year.
"Nonetheless, it does appear the market could use some consolidation
after an impressive three-week rally."
Of course, the US weather forecast will play a part, with
CHS noting that "cold temperatures are expected over the hard red winter wheat turf
in the days to come, worrying some in the trade about winterkill possibilities".
Wheat for March eased 0.3% to $6.18 ¼ a bushel, with the May
contract down 0.4% at $6.11 ¼ a bushel.
Key conference begin
Some squaring of positions might also be in play, given that
the day will bring the start of the two-day US Department of Agriculture Outlook
conference, with the first formal sowings estimates for this year's US crops.
In corn, traders
were on Wednesday "noted squaring up positions today in front of the much
ballyhooed Outlook conference," besides expirations on Friday of March options,
Corn at least managed to stand its ground on Thursday,
proving reluctant to give up the key $4.50-a-bushel mark after gaining it in
the last session.
The March lot stood unchanged at $4.53 ¾ a bushel, with the
May contract static at $4.60 ¼ a bushel.
March oats in
fact regained a, rare, premium over corn, soaring 4.5% to $4.60 a bushel on
fears for next week's North American cold snarling up logistics once again.