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Morning markets: bears lay off sugar but keep claws in wheat

Agricultural commodities have been taking the brunt of investors' quest for cash to pay for Christmas presents.

But sellers found it harder to rule the sector on Wednesday, although only after a further clutch of multi-month lows in early deals.

One of these was in raw sugar, before it put the brakes on its remarkable move south.

Out of the previous 26 sessions, going back to November 11, the sweetener has managed to close higher only three times (and one of those rises was by a meagre 0.01 cents), dropping nearly 12% in the process.

'Speculative selling'

There remains plenty of bearish talk on sugar.

"Whilst there is evidence of end-user interest on a scale down basis, the buying has not been enough to absorb what we perceive to be further speculative and fund selling," Sucden Financial said.

Hedge funds, in the week to last Tuesday, undertook their biggest bearish turn on record in positioning on New York raw sugar futures and options, cutting their net long by more than 48,000 contracts.

That has proved more than a match for the modest signs of demand so far, although Krispy Kreme Doughnuts has said it is locking in lower prices by making forward purchases.

'Rout continues'

"The rout continues in the global sugar market," Luke Mathews at Commonwealth Bank of Australia said early on, adding that "the drivers of the sugar bear market have not changed in recent weeks.

"That is, comfortable global supplies and anaemic demand provide no fundamental reason to lift bids."

And indeed, the idea of easy supplies was underlined on Tuesday when Unica, the cane industry group, nudged its forecast for the cane crush in Brazil's Centre South 3m tonnes higher to 590m tonnes, up some 10% year on year.

Meanwhile, Indian and Thai output are ramping up seasonally.

However, there are also ideas that levels below 16 cents a pound will spur buying interest.

Raw sugar for March stood 0.4% higher at 16.00 cents a pound as of 10:30 UK time (05:30 New York time, 04:30 Chicago time), if only after hitting a fresh three-year low of 15.86 cents a pound earlier on.

'Minimal winterkill threats'

Among grains and oilseeds, while corn has been bears' favourite for much of the year, wheat has taken on that role, convincingly, in December, and extended its losses, setting a fresh contract low, and the weakest for a spot contract since June last year.

Sure, US wheat exports are getting more competitive, as results of the latest Egyptian tender indicated (although shipping differences mean it may have a further $20 a tonne to go to work into North Africa).

But they need to, when neighbouring Canada has such a huge crop to sell. Meanwhile, logistical bottlenecks mean wheat is losing out on US exports to the huge volumes of corn and soybeans also being shifted.

Meanwhile, the need for a risk premium to account for the threat of the US cold snap to wheat seedlings has reduced.

"There are minimal winterkill threats forecasted for the next two weeks in US wheat growing regions due to snow cover," CHS Hedging said.

'Blowout to the downside'

Technical factors are offering wheat bulls the comfort of a market which is, as Benson Quinn Commodities noted, "drastically oversold".

"I question the speculators' appetite to continually offer wheat into oversold conditions," Brian Henry at Benson Quinn said.

However, "they haven't gotten hurt doing it to this point", and "momentum studies in the winter wheat classes are also indicating decidedly lower prices before finding value.

"Wheat is long overdue for a correction. But a blowout to the downside may be in order to find value/exhaust selling."

For now, March wheat was 0.8% down at $6.14 ¾ a bushel in Chicago.

'Some dryness is occurring'

Corn itself was unchanged at $4.26 ¾ a bushel in Chicago for March delivery, gaining some support from Argentine weather concerns.

Very warm temperatures across the region are resulting in some stress on corn and soybeans, especially in La Pampa and south western Buenos Aires, where some dryness is occurring as well," US-based weather service MDA said.

While "some improvement" is expected in some areas this week, and over the weekend, "warm temperatures will likely continue in north central areas, maintaining some crop stress".

Broker CHS Hedging said: "Temperatures topping 100 degrees Fahrenheit in Argentina are helping support corn and soybeans even though the South American crop in general looks superb."

Chinese rejections mount

Sure, a backdrop of concerns remains over the impact of China's rejection of some imports of US corn, on grounds of containing an unapproved genetically modified variety.

Indeed, Shanghai-based JC Intelligence estimated that China had rejected more than 10 cargoes of US corn since mid-November, more than the four cargoes confirmed by quarantine authorities last week.

Of the 40 US cargoes arriving since mid-November, more than half had passed tests, JCI said.

However, hedge funds appear on a trend of covering short positions in corn for now, reducing their net short position in Chicago futures and options last week below 100,000 lots for the first time in three months.

Whether that will last of course… Still, strong ethanol production data are supporting a less dismal stance. Fresh weekly statistics will be released later today.

Data later?

There is also some talk that Informa will release fresh estimates for US 2014 acreage later too, although Friday is a more typical day for the group's statistical releases.

At current comparisons of corn and soybean prices, the oilseed looks like winning the spring acreage battle hands down in the US, having scored big victories in the South American planting campaign too.

And soybeans extended their appeal, adding 0.2% to $13.36 ¾ a bushel for the best-traded March contract, helped by the Argentine dryness fears.

'Not in danger yet'

Not that all brokers are convinced, with one saying that while "there is some dryness in Argentina, at this time soybeans are still only 6-8 inches high and are not in danger of serious crop stress just yet.

And although "Chinese soybean purchases have been strong up to this point and are another headline for the rally, this should already be priced into the market.

"The bottom line is we don't have a clear reason for soybeans to continue to trend higher. 

"South America is still expecting a record crop and the US is likely to see many soybean acres picked up at current prices in 2014." apologises for interruptions to its coverage on Tuesday, which were caused by a fault at its internet service providers, 1and1.

Morning markets: Turnaround Tuesday helps grains - a little
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