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Morning markets: Argentine weather fears lift soybean prices

Dreaming of a white Christmas?

Many growers in Argentina may be hoping for a wet one, after a continuation of the dryness which is ringing alarm bells on grain and oilseed markets, if still at a low decibel level given the fine start the crop has got off too.

"Dry weather prevailed over the weekend" in the South American country, weather service MDA said.

This week, showers "will begin to develop in northern areas", but "hot weather will add stress to crops".

'May stress crops'

And looking further ahead, in the first half of next week, "the forecast has trended drier in southern Argentina and wetter in north western Argentina.

"Wetter weather across north western Argentina would replenish soil moisture for corn and soybeans," US-based MDA said.

"But hot and dry weather elsewhere may stress crops."

'El Nino signal'

And this is happening when there may be some signs of an El Nino weather pattern too, given the unusual conditions in the US.

"The anomalous weather in December in many areas of the US reflects an El Nino 'signal'," Gail Martell at Martell Crop Projections said.

"Specifically, the wetness in the South and Southeast resembles the October-December template with El Nino. 

"Very cold temperatures in the upper Midwest and east also resemble the weak El Nino pattern."

'Not likely be affected'

That said, it has to be remembered that official forecasters foresee neutral El Nino/La Nina conditions for now, ie forecasting that neither will occur.

At Texas A&M University, Mark Welch said: "The El Nino forecast continues to call for neither El Nino nor La Nina conditions as the three month average sea surface temperatures in the equatorial Pacific are expected to remain in the neutral zone through summer.

"However, forecast models increasingly lean toward the development of El Nino next [northern hemisphere]  fall."

And while these weather patterns are a big concern to South America, it is La Nina rather than El Nino which is the bigger threat to Argentina, in terms of bringing dryness.

Furthermore, one US broker said that Argentine soybeans "are only about 6-10 inches tall at this time and would not likely be affected by the current forecast".

Christmas theme

Still, there was enough concern around to help Chicago soybeans for March stand 0.3% higher at $13.35 a bushel as of 09:45 UK time (03:45 Chicago time), after hitting 13.39 a bushel earlier, a three-month high for the contract.

"Soybeans are likely to remain supported for the week as unfavourable weather conditions in Argentina would result in continued concerns over the developing crops," Vanessa Tan at Phillip Futures said.

As an extra incentive to buy, there is a strong seasonal uplift theme too, with CHS Hedging noting that "in the last 10 years, January soybeans have closed higher the day before Christmas nine times with an average gain of $0.09 a bushel.

"It has closed higher the day after Christmas eight times with an average rally of $0.27 a bushel."

Palm rises

Furthermore, the oilseeds complex got a little help from firm, if not exuberant, performance by the soy complex on China's Dalian exchange overnight, and by a 1.2% rise to 2,614 ringgit a tonne in Kuala Lumpur palm oil for March, retaking the 10-day moving average on a continuous chart.

Palm oil is being helped by the depreciating Malaysian ringgit, which set a fresh three-month low against the dollar, boosting export prospects in making the vegetable oil, of which Malaysia is the second ranked producer and shipper, that much more affordable to buyers in other currencies.

In fact, while SGS data on Friday showed Malaysian palm oil exports down 9.8% month on month in the first 20 days of December, that was a marked improvement on the 26% decline seen in the first 10 days of last month, implying an improved performance.

(Intertek put the decline at 12% for the first 20 days, down from 19.8% in the first 10 days.)

Furthermore, there is the Chinese new year at the end of January to factor in

"The slowing pace of decline in palm oil exports could be propped by the ending of the cold winter period, weakening ringgit and increasing demand from China as the nation restock ahead of Chinese new year," Phillip Futures said.

Cattle data

Back in Chicago, some of the same factors supporting soybeans might have been expected to boost corn too.

And CHS noted that in fact, "March corn has closed higher both the day before and day after Christmas in nine of the last 10 years.

"The average gain the day before is 2.86 cents a bushel and the day after the average increase of 6.1 cents a bushel."

However, besides the background concerns about the impact of the record US corn crop in minimising supply threats, there was some disappointment too in US cattle on feed data late on Friday too, showing feedlots took in 1.943m animals last month, a drop of 3% year on year.

Investors had been expecting a figure of about 1.943m head, roughly the same as in November last year, and implying more mouths to feed.

Corn for March was 0.25 cents easier at $4.33 a bushel.

'Lacklustre export demand'

Furthermore, fellow grain wheat remained under a cloud too, failing to build on its, unusual, gains of the last session to itself stand 0.5 cents lower, at $6.13 a bushel for March.

"Going forward, we see that US wheat will continue to be weighed by lacklustre export demand and slow global purchases in light of abundant global supplies of wheat," Phillip Futures said.

"Even if there are purchases of wheat, it may unlikely to be of US origin."

Nor is the cold weather in the US too much of a threat, with crops having a snow blanket.

"Fresh snow cover in southern and eastern Kansas, north western Oklahoma and north western Texas should protect wheat from winterkill," MDA said.

'Extremely weak technical structure'

Nor are technical factors positive for wheat either, limiting the risk to the speculators which have built up a huge short position in the grain in Chicago, so in theory opening up the threat of a short-covering spike in prices.

The net short position in the week to last Tuesday, rose more than 2,000 contracts to a record high of nearly 72,000 lots, regulatory data late on Friday showed.

"With little else to go on, short covering remains the feature in oversold markets, but there is a limit to how much of that they want to do given the extremely weak technical structure and negative fundamental picture," Brian Henry at Benson Quinn Commodities said.

While investors "have to respect the oversold nature of the wheat markets, a legitimate correction requires a much better appetite to cover shorts.

"Given the daily occurrence of new lows for the move and the inability of the market to sustain upward momentum through mid-session, the wheat needs both the fundamental and technical structure of the market to improve."

'Provide some pressure'

Among soft commodities, raw sugar fell too, by 0.4% to 16.38 cents a pound in New York for March delivery on profit-taking, and end-user selling, after its recovery late last week.

"With raw sugar prices rallying towards the end of the week, it could boost farmer selling in Brazil, especially if the Brazilian real remains weak," Ms Tan said.

"This could provide some pressure to the raw sugar market."

Although Brazilian crop bureau Conab on Friday cut to 38.8m tonnes, from 41m tonnes, its forecast for total domestic sugar production in 2013-14, "this is still a record result and up 500,000 tonnes year on year", Luke Mathews at Commonwealth Bank of Australia noted.

Evening markets: ag futures manage firm end to tricky week
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