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Morning markets: Argentine heat helps soy. But grains ease

For shareholders, Wednesday brought a brighter day, after the jitters earlier in the week prompted by disappointing US jobs data.

Tokyo stocks, which tumbled 3.1% on Tuesday, rebounded 2.5%, with Sydney stocks recovering 0.6%.

But for grain investors, there was little to cheer in early deals, when prices extended their losses of the last session.

However feebly the index fund rebalancing process (expected to have closed on Tuesday) seems to have behaved in terms of providing support for grain prices wheat futures were down 4% over the week, and corn rose only thanks to surprise US inventory data would its ending mean enhanced pressure?

'Nothing bullish'

Certainly, wheat futures for March were down 0.2% at $5.78 a bushel in Chicago as of 09:45 UK time (03:45 Chicago time), amid ideas that while the worst may be past for now, reasons to buy are not that compelling.

And, after all, the contract had already risen for two successive sessions a feat not managed since November.

Three successive positive sessions, well, that has not been witnessed for three months.

There is "nothing bullish about the new crop US and world wheat supply and demand outlook", Richard Feltes at Chicago broker RJ O'Brien said, although he acknowledged support to prices from cold and dry weather in the US, and ideas of continued Brazilian purchases.

"Wheat lows may be in short term until the market accesses the late-January Artic blast and the extent of follow-up Brazil buying," he said.

'Brazil story'

Jonathan Watters at Benson Quinn Commodities also clocked "late session chatter about dry conditions in the southern US Plans and cold temperatures next week".

But the "Brazil story" appeared to him to carry more weight, with the South American country needing 7.7m tonnes in 2013-14, according to the US Department of Agriculture, and Argentine supplies, while permitted to some extent this week, hardly forthcoming.

"In the absence of the shipments from these two countries," Argentina, Paraguay too, "Brazil is turning mainly to the US for its milling needs," the US Department of Agriculture said in a report overnight.

"By the beginning of the new year, Brazil had purchased more than 3.0m tonnes of US wheat. Reduced competition in South America is enhancing US wheat export prospects."

In fact, while Kansas City-traded hard red winter wheat futures for March maintained a little of their recent outperformance, being the variety mainly imported by Brazil, and grown on the frost-threatened southern Plains.

Kansas City wheat for March eased 0.1% to $6.31 a bushel.

'Reduced pressure to import'

Corn fell too, by 0.2% to $4.30 a bushel for March delivery, under pressure from fresh talk of Chinese rejections of distillers grains (DDGs), the byproduct of corn ethanol production used as a feed ingredient.

While Chinese authorities had appeared to be more relaxed over DDGs than corn itself over containing a genetically modified variety unapproved in Beijing, such observations have been challenged by talk of two fresh cargoes being turned away.

The USDA commented overnight that "the record large corn crop in China reduces pressure to import corn, and rejection of some import shipments could help the government sustain high internal corn prices", under pressure from a large 2013 harvest.

The USDA last week raised by 6.0m tonnes to a record 217.0m tonnes its estimate for China's corn harvest last year.

'Hot and dry weather'

At least, from a bulls' perspective, the March contract is holding just above its 50-day moving average, which it closed over on Tuesday for a third successive session for the first time since June.

Indeed, row crops are getting some support from concerns over Argentina's weather, even if Brazilian conditions appear benign.

"Hot and dry weather in Argentina during the critical [corn] pollination stage has many watching weather patterns and upcoming forecasts," CHS Hedging said.

"High temperatures in the southern areas are expected to reach the upper 90s to low 100s Fahrenheit."

'Increase the risk to corn'

At Commonwealth Bank of Australia Luke Mathews said: "A renewed drying trend in southern Argentina is reducing the potential size of the country's corn crop. 

"This may lend some support to global prices."

And At Jefferies Bache, Anne Frick flagged that "a new round of extreme heat continues to develop and should last into Saturday.

"Hot temperatures increase the risk to corn, especially pollinating corn."

'Lowered sights'

However, it is soybeans which are managing to find more support, with Benson Quinn Commodities highlighting "the prospects of additional crop stress in Argentina".

"Due to less than favourable conditions, private forecasters have lowered their sights on Argentine soybean production."

Furthermore, prices are being helped by ideas of a strong US crush number for December due later on Wednesday.

The National Oilseed Processors Association is expected to show volumes at about 163-164m bushels, potentially hitting a record high.

Chinese dynamics

Soymeal, one of the two main soybean processing products, is also under the microscope, with China's rejection of US DDGs, a rival protein source in feed, potentially heightening competition in the US market on this score.

Still, as a twist on this theme, lower volumes of DDG imports may raise the need in China for soymeal, improving crush margins and the appetite to import soybeans themselves.

Whatever, on the Dalian exchange in China, the top soybean importer, soybeans for May added 0.7% to settle at 4,644 yuan a tonne, while soymeal for May settled up 1.1% at 3,364 yuan a tonne.

In Chicago, soymeal for March was unchanged at $430.10 a short ton, while soybeans for March were also unchanged at $13.07 a bushel.

Mixed softs

Among soft commodities, raw sugar maintained its downswing, falling 0.3% to 15.45 cents a pound for March, just 0.04 cents from matching the three-year low for a spot contract, after the resilient Brazilian Centre South production data on Tuesday.

Cotton for March added 0.5% to 84.16 cents a pound despite data showing that Chinese cotton imports fell 19.2% to 4.15m tonnes in 2013.

Such a decline had been expected, with many having earlier last year forecast a deeper decline.

Evening markets: corn returns into reverse. But wheat gains
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