Morning markets: China return lifts markets

Commodities and markets generally have been given a lift so far today as China players return from their week long New Year holiday.


The three-month copper benchmark stood up 0.5% at the time of writing on the London Metal Exchange with spot gold up by a similar amount in early European trade.


Equity markets in Asian stood with solid gains by the close with the Shanghai & Shenzhen CSI 300 Index up 0.5%; Hang Seng Index 0.9% and the Nikkei 225 Index a solid 2.1%, boosted by positive earnings results.


Currency markets have seen a more mixed start however as trades take a more cautious stance ahead of today's key non-farm employment reading for January.  Economists predict the US economy added 185,000 jobs last month; however Wednesday's disappointing ADP-private sector employment change reading caused the dollar to weaken.


At the time of writing the greenback stood up 0.2% against the euro, but down marginally again the Japanese yen.


China "holds all the cards"

The return of Chinese players brings into question the demand for US soybeans, with many investors still expecting Chinese importers to ditch US deals in favour of Brazilian supplies, now the South American country's harvest is up and running in earnest.


Futures for May delivery closed up 0.5% on the DaLian Commodity Exchange Friday at RMB 4,712 a tonne.


"China "holds all the cards" but thus far has not only refrained from US soybean export cancellations but in addition continues to add to old crop soybean purchases," said Richard Feltes at RJ O'Brien.


US export sales were decent at 577,000 tonnes for 2013-14 "up 59% from the previous week and 25% from the prior four-week average", the USDA said, with a further 219,500 tonnes for next season.


The latest increase takes sales for 2013-14 season to 1.58bn bushels, less than half way through the season, but already above the 1.495bn bushels that the USDA has pencilled in for the whole year.


Don't cry for me Argentina

While the harvest in Brazil picks up pace players will be looking to developments further south as growers in Argentina have been hoarding soybeans, as a hedge against falling currency. 


"Their peso has been collapsing and has resulted in slow movement of grain as farmers hold out until they need to sell or are confident that the currency has stabilized, "noted a US broker.


The peso "weakened by a total of 19% in January," noted the USDA Foreign Agricultural Service recently as they downgraded their outlook for the countries soybean crop, due to "dry conditions leading to the loss of second crop soybeans in the western and southern province of Buenos Aires".


The USDA bureau in Buenos Aires lowered its productions in estimate to 54m tonnes with "average yields lowered due to poor conditions of second crop soybeans".


A similar downwards revision was made by Informa Economics last week, who lowered its production forecast for the 2013/14 harvest to 57m tonnes, down 500,000 from its previous figure.  The firm however noted the crop would benefit from "timely" recent rains.


'Corn consolidates'

Corn has seen a soft start with March futures current off 0.2% having finished Thursday down 0.25 cents a pound to $4.43.  Futures have met with profit-taking despite some bumper US export weekly sales data.


"Net sales of 1.70m tonnes for 2013-14 were down 8% from the previous week, but up 94% from the prior four-week average," the US Department of Agriculture said.


"Corn consolidates despite much better than expected corn export sales," US Commodites said.


Players will be looking to Mondays monthly Wasde report amid expectations the USDA will raise its forecast for US corn exports in 2013-14, and trim the end-stocks number.


Furthermore, the cold weather looks like keeping on coming for the US, impeding supply deliveries and so providing support to short-term prices.


Oat surge

Players will be looking to how corn compares with oat prices today, which hit a record high yesterday and closed above corn in Chicago for the first time in 12 years.


Oat prices have surged after severe railroad delays and other logistical problems in Canada sent the price of the grain above corn for the first time in eight year


But can they hold on to their gains?


The latest splurge higher was driven by the threat of a railroad workers' strike in Canada, which is already struggling with its logistics, and in delivering south the supplies that US oat consumers rely on.


(The US imports nearly half its oats, with Canada the default supplier.)


March oats hit a record, for a spot contract, of $4.63 a bushel Thursday before easing to close at $4.56 a bushel, up 3.0% on the day, and at a premium of some $0.13 a bushel to corn.


'Risk premium'

Ongoing harsh winter conditions continue to underpin wheat prices, with futures for March delivery currently up 0.5% so far.


"Snow remains extensive across much of the Plains wheat belt, especially in Kansas, Colorado and Nebraska, and this is helping protect whet from very cold temperatures," MDA said.


Richard Feltes of RJ O'Brien expected wheat to carry its "added risk premium until 2014 US crop breaks dormancy."


Coffee support

Dryness was also keeping coffee prices in a buoyant mood this morning with Arabica futures for March delivery up 0.9% in electronic trade.


The steadier start follows a sizeable correction yesterday which saw Arabica beans for March tumbled 4.4% from the last session's eight-month closing higher to 136.75 cents a pound.


Thursdays rout was triggered by general profit taking as well as comments from Colombia's Fedecafe growers' organisation, suggesting the country could raise output a further 400,000 bags to 11.3m bags this year, offsetting at least some of any losses in Brazil.


Despite Thursdays correction coffee, which at Thursday's close was still up 24% so far in 2014 should for the moment remain supported amid little, if  any improvement in the outlook for Brazilian weather.


The latest weather outlook from MDA shows that farmers in Minas Gerais, the top coffee-growing state, can expect little or no rainfall until at least mid-month.


India decision

Staying with the soft commodities, New York raw sugar stands down over 1% early Friday following the decision by India's government to raise the minimum cane price mills must pay growers by 5% to 220 rupees per 100 kilogrammes from October.


March futures finished down 1.6% in New York Thursday to 15.85 cents a pound, retreating back below its 50-day moving average after only one close above the line.


Chartists at Phillips Futures suggest the "downtrend could still be intact" and futures would need to "break above the resistance level of 16.58 before we agree that there is a change in trend".


"Prices could then test the support level of 14.63," given the divergence in momentum indicators.