PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 08:34 GMT, Monday, 27th Jan 2014, by Agrimoney.com
Morning markets: ags outperform shares, but fail to shine

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 managing.

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%. 

'Increased winterkill threats'

Chicago wheat, meanwhile, added 0.1% to $5.66 a bushel for March delivery as of 08:30 UK time (02:30 Chicago time).

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 cover.

"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 too large'

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 establishing length.

"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 falling peso?

"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".

'More incentive'

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 a bushel.

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 a tonne.

'Better feed demand'

Chicago soymeal for March was up 0.2% at $426.50 a short ton.

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 crop'

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 said.

Corn for March was down 0.1% at $4.29 a bushel.

Mixed softs

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 market currencies.

A weaker real softens the value, in dollar terms, of assets in which Brazil is a major player.

However, cotton 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.

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