Wednesday is one of two big days for ag markets this week.
Friday is the more important, bringing US Department of
Agriculture briefings on domestic grain stocks and winter wheat seedings,
besides the monthly Wasde crop report.
It will also see the Malaysian Palm Oil Board release
monthly data on Malaysian palm oil
supply and demand.
Today is more important for technical reasons in
bringing the start of the index fund rebalancing exercise.
The process sees index funds adjust portfolio weightings
back to levels indicated by the index they follow, meaning selling 2013's
outperforming commodities and buying those which lagged, leaving them too
sparsely represented in the portfolios.
Forecasts for Wasde US 2013-14 corn data and (change on current figure)
Production: 14.066bn bushels, (+77m bushels)
Range of estimates: 13.897bn-14.255bn bushels
Yield: 161.2 bushels per acre, (+0.8 bpa)
Carry-out stocks: 1.861bn bushels, (+69m bushels)
Range of estimates: 1.654bn-2.054bn bushels
Grain stocks, December 1: 10.79bn bushels
Range of estimates: 10.025bn-11.25bn bushels
And it has attracted some comment, especially among corn investors, with the grain's 40% slump
last year implying quite some buying pressure now.
"Talk that index fund rebalancing starting tonight
[Australia time], in which funds are rumoured to buy as many as 100,000 corn
contracts, may momentarily support values," Luke Mathews at Commonwealth Bank of
Benson Quinn Commodities said: "The trade anticipates a bid [in
corn] offered by the index fund community as they proceed with the rebalancing
process, which starts on Wednesday."
Another broker said: "Index funds are estimated to buy up to
100,000 contracts of corn, only 5,000 contracts of soybeans and up to 17,000 contracts of wheat."
Allendale said: "Traders are estimating the index funds will
be covering approximately 90,000 corn contracts and nearly 20,000 soybean
contracts before they are done."
Forecasts for Wasde US 2013-14 soy data and (change on current figure)
Production: 3.279bn bushels, (+21m bushels)
Range of estimates: 3.24bn-3.33bn bushels
Yield: 43.3 bushels per acre, (+0.3 bpa)
Carry-out stocks: 150m bushels, (-1m bushels)
Range of estimates: 118m-180m bushels
US grain stocks, December 1: 2.161bn bushels
Range of estimates: 2.027bn-2.266bn bushels
However, the Chicago-based broker added that "many think
their buying may take place on the close each day until they complete the task".
Indeed, there was little sign of movement in early deals,
when corn for March was 0.2% higher
at $4.26 ¾ a bushel at 09:15 UK time (03:15 Chicago time).
Wheat, which fell
22% in Chicago last year, added 0.3% to $6.04 ¼ bushel for March, although that may have been
down to background concerns about the impact of US cold on winter wheat
CBA's Luke Mathews noted "lingering worries that this week's
extreme cold could result in some winterkill for the US winter wheat crop".
In fact, for Illinois, December - with an average
temperature of 25.5 degrees Fahrenheit, 4.4 degrees below normal - was only the
20th coldest on records going back to 1895.
Jim Angel, the state climatologist, highlighted that it was "disappointing
that both November and December were so dry for Illinois", with precipitation
of 2.5 inches, although in snow terms this appears enough for a decent blanket.
The concern over frost damage has been worse, in the Midwest
(soft red winter wheat country), in south eastern Indiana, central and southern
Ohio and north central Kentucky, according to weather service MDA.
This besides the fears over parts of Colorado, Kansas and
Nebraska in the hard red winter wheat belt.
Still, coldness from today "should moderate, and winterkill
threats will ease", MDA said.
Also contributing to a relatively stable market was the
prospect of Friday's looming USDA data, and the uncertainty ahead of it.
Grain stocks reports in particular have a reputation for
causing large market moves.
"The main focus is Friday's USDA data dump," Mr Mathews said.
The USDA is expected to nudge higher its forecast for last
year's domestic corn harvest, and for stocks at the close of 2013-14.
For soybeans, an uplift is expected to the production
figure, but not to the estimate for carryout inventories, given the strong pace
of exports so far.
'Trade is awaiting
Still, investors continue to doubt whether that export pace
can continue, given the prospect of a strong South American harvest coming
"Trade continues to believe China has double-booked soybeans
for spring in anticipation of Brazilian and Argentine logistic backlogs," Kim
Rugel at Benson Quinn Commodities said.
"Trade is awaiting
cancellations or switching on optional origin purchases to show up on USDA
export sales reports sometime later this month or next."
RJ O'Brien's Richard Feltes noted that "Brazil appears
committed to priortising soybean exports in the first quarter of 2014".
Soybeans for March stood 0.1% lower at $12.74 ¼ a bushel in
Chicago, despite a gain in Dalian prices overnight, where the May soybean
contract added 0.5% to 4,555 yuan a
Elsewhere among oilseeds, Kuala Lumpur palm oil fell 0.4% to
2,550 ringgit a tonne, continuing a clean sweep of declines so far in 2014.
In fact, investors expect Friday's MPOB data to show the
first decline in Malaysian palm oil stocks for six months, albeit a drop of only
20,000 tonnes to 1.96m tonnes, as production shows a seasonal decline.
However, Phillip Futures' highlighted palm oil's "narrowing
discount" to rival soyoil, which has
encouraged substitution, hence shifting away some demand from palm oil to soyoil
in terms of food and biodiesel uses".
In New York, cotton's winning streak stalled, with the March
contract easing 0.2% to 84.54 cents a pound.
Prices have risen amid "talk that last week's price dip
encouraged fresh physical demand", CBA's Luke Mathews said, also noting the estimates
that Chinese cotton acreage this year will fall below 3.9m hectares.