Two themes are
gaining ascendancy in markets, Chinese economy softness and the Ukraine crisis,
only one of which is helpful to agricultural commodity prices.
concern is supportive for many markets. Shares
are hurting, losing 2.6% in Tokyo and 1.7% in Hong Kong.
The China worry in
particular has claimed the scalp of copper
in particular, which tumbled more than 5% in early deals in Shanghai to 43,690 ($7,115)
a tonne, the lowest since July 2009, before staging some recovery.
demand comes largely from housing projects, but which also is used in China as
a financing tool, is particularly sensitive to concerns over the country's
"Demand for the
industrial metal is being questioned further as China sees exports and
inflation contracting at faster rates than expected," IG said.
However, China is
also the top importer of a number of agricultural commodities, including soybeans, over which there are heightened
concerns that the country's importers are about to start on a wave of
cancellations of orders of US supplies, after already apparently ditching some
Luke Mathews at Commonwealth Bank of Australia said "talk
that the Chinese may have cancelled more than 500,000 tonnes of Brazilian
soybeans continues to unsettle the trade".
Brian Henry at
Benson Quinn Commodities said: "There's talk of additional cargos of Brazilian
soybeans being cancelled and the possibility of Chinese buyers electing to
default on US purchases.
Chinese ownership is actively seeking opportunity to roll purchases forward."
'Possible weaker demand'
Soybean futures for
May tumbled 1.8% to $13.88 a bushel in Chicago as of 09:20 UK time (04:20 Chicago
time), producing a gap on the chart.
In fact, that
represented a strong underperformance compared with prices in China itself,
where Dalian soybeans for May closed up 0.1% at 4,380 yuan a tonne.
But they were
little helped by oilseeds peer palm oil,
of which China is also a major importer, and which fell 1.3% to 2,835 ringgit a
tonne in Kuala Lumpur, if remaining near their highest since September 2012.
"The high price
level has sparked off concerns on possible weaker demand for palm oil in terms
of food and biodiesel uses, as it renders palm oil's price competitiveness in
relative to other vegetable oils," said Chee Tat, analyst at Phillip Futures.
Soyoil itself dropped 1.2% to 43.22 cents a pound in Chicago for May delivery.
In New York, cotton, of which China is the top
importer, was on poor form too, dipping 0.4% to 91.26 cents a pound, albeit
also remaining among its highest levels for months.
Indeed, there are
some investors getting vertigo at levels above 90 cents a pound, reached on
Friday on ideas of Chinese agricultural subsidy reforms proving positive for
imports, coupled with decent US export data.
"It remains to be
seen whether this recent buying is anything more than a speculative run-up,"
said Dr John Robinson at Texas A&M University.
The spread between
old crop and new crop cotton, as measured by July 2014 and December2014
contracts, "widened a couple of cents and maintains the strongly inverted price
pattern that has persisted since last year.
interpretation of this spread pattern is more bearish for the future with no
economic incentive to store cotton other than as a pure contingency."
In fact, cotton for
December outperformed by a smidgen on Wednesday in easing only 0.3% to 79.66
cents a pound.
Ukraine and US
And, back in Chicago,
grains were not on good form either, although at least getting some support,
compared with soybeans, from the Ukraine crisis factor, which is supportive in
that the country is a big exporter of corn
and wheat, besides barley.
potential hiccups to shipments (of which there has been no evidence yet) there
is the concern that financial disruption may hamper farmers in spring sowings,
or at least forking out for fertilizer.
Winter crops have
been struggling with a lack of rain there too, as they have been in the
southern US Plains.
The "main focus" in wheat markets "appears to be concerns
about Ukraine with Russian troops moving in, along with talk of damage to the
US winter wheat crop in Kansas, Oklahoma and Texas," CHS Hedging said.
'Funds got out of the
right side of bed'
To add more fuel to the bullish fire, the North American
Millers Association forecast a US soft red winter wheat crop this year of 437m
bushels, a 23% drop year on year, and a fall more severe than a 16% drop in sowings
But the extent of
the rally in the last session, when wheat futures jumped more than 2% in Chicago,
has prompted some puzzlement.
CBA's Luke Mathews said that "there is no real change to the
fundamental drivers or newsflow," although some may disagree (see above).
"Instead, it simply appeared that the funds simply got out
of the right side of bed."
Commodities' Brian Henry said that while newsflow had "merited attention and perhaps
support, it didn't merit a $0.25-0.30-a-bushel higher move".
CHS Hedging highlighted chart, rather than fundamental,
factors in the price rise, saying that "technical buying kicked in once the
Chicago May wheat pushed through Tuesday's close of $6.40 ¾ a bushel and
continued to rise above its 200-day moving average of $6.63 ½", although failing
to close above this target.
'Too early to be suggesting a problem'
At FCStone, Jaime Nolan Miralles injected some clarity to
concerns over Crimea itself, where officials expect spring plantings to be
largely missed, on Ukraine production of spring crops, for which corn is the
most important on world market terms.
"The Crimea region
does not represent a significant threat to overall Ukraine spring grain
plantings in terms of lost acreage," Mr Nolan said.
"Instead we note
the significant portion of winter barley sown in this area and around 6% of
winter wheat sown here also."
He added that "on
the crop condition front, there is some concern over dryness in central and southern
Ukraine, but we have time yet to rectify this.
"It is far too
early in our view to be suggesting Ukraine has a problem."
Wheat for May dropped
0.6% to $6.55 ¼ a bushel in Chicago, staying below its 200-day moving average.
Corn for May was
0.9% lower at $4.79 a bushel.
Back in New York, raw sugar traded weaker, dropping 1.1%
to 17.83 cents a pound, amid growing worries over demand at price levels well
above the sub-15 cents a pound levels reached in late January.
The spread between
white sugar and raw sugar "has narrowed sharply, by $19 a tonne, over
the past three weeks, signalling that the recent rally has not been led by
strong demand," CBA's Luke Mathews said.
"Supply side concerns, in Brazil and India, remain the
primary supportive influence for sugar prices, but without robust demand we
question how sustainable these prices will prove."