PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 09:17 GMT, Wednesday, 8th Jan 2014, by Agrimoney.com
Morning markets: ags stall awaiting fund rejig and data dump

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.

Rebalancing act

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 Australia said.

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."

'Lingering worries'

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 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  bushel for March, although that may have been down to background concerns about the impact of US cold on winter wheat seedlings.

CBA's Luke Mathews noted "lingering worries that this week's extreme cold could result in some winterkill for the US winter wheat crop".

Cold factor

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.

Data dump

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 cancellations'

Still, investors continue to doubt whether that export pace can continue, given the prospect of a strong South American harvest coming onstream.

"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 a bushel in Chicago, despite a gain in Dalian prices overnight, where the May soybean contract added 0.5% to 4,555 yuan a  tonne.

'Narrowing discount'

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.

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