Agricultural commodities extended their outperformance of shares, but it was somewhat hard work.
There is a theory that the tumble in equity values, spurred
by emerging market uncertainties, will prove a positive for commodities, in
encouraging investors to diversify their portfolios.
But if there is money coming into ags from shares, it was
not a torrent as of early deals on Monday, when grains were stable, but hardly buoyant.
Still, it has to be said that is better than shares are
Shanghai shares dropped 1.0%, Hong Kong stocks were down
1.0% and Tokyo shares close down 2.5%. European shares opened lower, with London shares down 0.9%.
Chicago wheat, meanwhile,
added 0.1% to $5.66 a bushel for March delivery as of 08:30 UK time (02:30
While this was a gain, it was hardly a large one, given
another large order revealed earlier, by Saudi arabica of 715,000 tonnes, following
last week's purchases by the likes of Algeria and Iraq.
The wheat was bought from Australia, Europe, and North and
South America, the Saudi grains authority, GMSFO, said.
Furthermore, the US weather outlook hardly looks too benign,
with more cold temperatures arriving, including on some areas lacking snow
"Very cold temperatures Monday and Tuesday may result in
some winterkill damage in eastern and central Nebraska," weather service MDA
said, adding that outlooks for next week and the week after were colder too.
"Cold temperatures across the central Plains wheat belt will
increase winterkill threats."
'Supplies are still
Phillip Futures said: "Weather conditions in the US are
expected to remain harsh and cold.
"This is raising concerns that winterkill could affect and
damage the US wheat crop. Thus, we may see some support to US wheat prices
stemming from unfavourably cold weather conditions in the US."
Still, as CHS Hedging said: "World demand is active and
winterkill is providing some bullish support, but supplies are still too large
to confirm a bottom in this market."
At Benson Quinn Commodities, Brian Henry said that the cold
conditions "have resulted in some short covering, but little commitment to
"While I don't doubt that some of the crop has been
experienced some potential damage, the amount of damage will depend on
conditions as the crop emerges from dormancy."
In fact, data late on Friday showed hedge funds increasingly,
slightly, to 56,571 contracts their net short position in Chicago wheat futures
and options in the week to last Tuesday.
Argentina vs Brazil
There was some weather concern to help row crops too, with
conditions in Brazil less than ideal.
"Moisture stress will continue to build in north eastern areas
while some harvest delays continue in north western areas," MDA said.
Looking ahead, "below-normal rainfall in Sao Paulo and Minas
Gerais will increase dryness concerns a bit", potentially a factor for sugar and coffee markets too.
However, conditions in neighbouring Argentina are improving.
"Dryness is likely to continue in west central Buenos Aires
in the short term but widespread showers are forecast in the six-to-10 day
period," MDA said, adding that the outlook was cooler and wetter too.
'Reluctant to sell'
There is also the factor of the Argentine devaluation to
consider, after last week's tumble in the peso.
Will this make farmers more willing to sell some of their
huge stores of soybeans, kept indeed as a dollar-denominated hedge against a
"Farmers in Argentina are well known to be reluctant to sell
soybeans and are actually using them as a second currency," Anne Frick at
Jefferies Bache said.
However, Argentine "policy risks are skewed more toward changing
that situation than exacerbating it".
Another US broker said: "In a surprising move the Argentine
government is removing some of its restrictions against purchasing US dollars.
"This may give more incentive for farmers to let go of
stored soybeans and would be slightly negative for prices."
However, with prices feeling some upward pressure from
Friday's strong US export sales data, March futures gained 0.1% to $12.86 ¼ a
It helped too that prices on China's Dalian exchange were a
little higher overnight, gaining 0.4% to 4,709 yuan a tonne for May soybeans,
with May soymeal up 0.7% at 3,316 yuan
'Better feed demand'
Chicago soymeal for March was up 0.2% at $426.50 a short
Indeed, feed ingredients received a boost from data late on
Friday showing US feedlots taking in slightly more cattle for fattening up last
month than had been expected.
"Placements in December were 101% [of those a year before] compared
to 98% expected," one US broker said, adding that "the increase could mean
better feed demand".
Benson Quinn Commodities affirmed that the "cattle on feed
report came in better than expected from a feed grain demand perspective".
'Good deal of old
However, corn futures struggled against ideas that there is
plenty around at levels not too much higher than they are now.
"There is still a good deal of old crop corn that is offered
to sell in the $4.35-4.45-a-bushel range against March futures," CHS Hedging
Corn for March was down 0.1% at $4.29 a bushel.
Among soft commodities, raw
sugar for March edged 0.1% higher to 15.12 cents a pound in New York,
helped by the Brazil dryness (the country is the top producer) and with the
real performing relatively well against the dollar, compared to some other developing
A weaker real softens the value, in dollar terms, of assets
in which Brazil is a major player.
for March fell 0.6% to 86.70 cents a pound.
As an industrial, rather than good, commodity cotton tends
to be more sensitive to macro-economic factors than other ags.