So if soybeans outperformed in the last session, and grains
on Wednesday, which would see the gains on Friday?
The answer is neither.
The day brought with it something of a "risk off" feel of
old, with assets deemed more vulnerable to tumultuous events such as Chinese
economy concerns and the Ukraine crisis falling while so-called safe havens,
such as the dollar, appear more in demand.
"Risk assets continued to be under pressure as the factors
that have been hitting global sentiment recently – namely concerns on China
growth and the Ukraine political situation – have shown little signs of fading
and if anything have intensified," Crédit Agricole said.
Brian Henry at Benson Quinn Commodities said: "From a fund
perspective, whether equities or commodities, the focus is on China and how
weakness in that economy would affect growth in the rest of Asia and dampen
prospects in the US."
Shares tumbled by
3.3% in Tokyo, by 1.5% in Sydney and by 0.7% in Shanghai, with Hong Kong stocks
As far as agricultural commodities go, China is of course a
major importer of the likes of cotton,
soybeans and sugar, with the prospect of weaker economic growth casting a shadow
over these markets.
For Ukraine, the picture has a more bullish twist, given that
the country is a big exporter of corn and wheat, and any setbacks to shipments
or to spring sowings from the crisis would stand to divert importers to other
origins, such as the European Union or the US.
However, with wheat prices having briefly hit four-month
highs in Chicago in the last session, and their best in Paris for nearly a
year, has enough risk premium been priced in?
"Since a lot of this wheat rally has been an emotional 'what-if'
roller coaster we are starting to find resistance at key levels," one US broker
said, citing the first one at the 200-day moving average, which Chicago futures
bust through on Wednesday.
"Now we are finding resistance at the psychological level of
$7.00 a bushel," the second key level.
"We can see a fundamental reason to worry only if banks hold
off on loans to Ukrainian farmers for 2014.
"But so far there have been no confirmation of that
happening and all signs point to 'business as usual'," an observation which, if
true would mean that "we have built way too much fear premium into wheat".
At Commonwealth Bank of Australia, Luke Mathews said that "more
traders and analysts are now questioning if the current rally has become
overheated, and the latest sales data suggests demand is being impacted".
That was a reference to weekly US export sales data, which
for wheat came in at 477,000 tonnes of old crop, down 14% week on week, if hardly
disastrous it has to be said.
And some investors are questioning whether the concerns over
US winter wheat condition have been overplayed, with Mark Welch at Texas A&M
University highlighting that "Texas wheat crop conditions improved considerably"
in this week's US Department of Agriculture crop progress report
As measured by an index score, it reached 290 points, up
from 254 the previous week and not far below the average of a little over 300
points for this time of year.
'Drought remains a
Still, Dr Welch cautioned also that Thursday's weekly US
drought monitor report showed "much of the southern and western winter wheat
growing regions in severe drought or worse.
And the "precipitation forecast for the next 5-7 days calls
for amounts of ½ inch or less in most growing areas".
Gail Martell, at Martell Crop Projections, said that while
the southern Plains, a major wheat-growing area, received temperatures into the
80s Fahrenheit, stimulating wheat growth, drought "remains a problem".
"Less than half of normal precipitation has developed since
early December in the 7 main bread-wheat states that make up 58% of US winter
wheat," she said, noting that Okahoma, the second biggest winter wheat state,
had received just 2.65 inches compared with an average of 6.57 inches.
Wheat fell in Chicago, but its decline was limited as of
08:30 UK time (04:30 Chicago time) when the May contract stood down 0.4% at $6.71 a bushel, remaining above its 200-day moving average.
"Many participants may be waiting for reaction to this weekend's
vote in Crimea before making their next move," Benson Quinn Commodities said,
referring to a controversial, Moscow sponsored poll of the region, to see
whether it wishes to secede from Ukraine and become part of Russia.
'Fields are frozen'
Corn for May fell
in line, by 0.4% to $4.84 a bushel, staying just above its 10-day moving
But then conditions are an issue for the grain too, with the
hangover from a cold winter, in terms of low soil temperatures, a potential
hiccup to spring sowings, as Allendale highlighted on Thursday, while Midwest dryness
is raising some concerns too.
"Producers are looking forward to moderating temperatures
after a bitterly cold winter," Ms Martell said, noting that "fields are frozen
through a deep soil layer down 8-12 inches".
"Worsening" is "creeping into the Midwest", she added.
"Both Iowa and Minnesota currently have modest drought along
with central Illinois and western Wisconsin."
One separate factor to watch out for, though, is talk that
China is trying to cancel purchases of US distillers' grains, a byproduct of
corn ethanol manufacture used in livestock feed, and of which China is by far
the biggest importer.
'Basis trying to
Talk of Chinese order cancellations remains a big talking
point in the soybean pit, of course, with talk of some 500,000 tonnes of South
American purchases ditched so far, and attempts to scrap or sell on a further 1m
Furthermore, Allendale talked of huge US soybean sowings,
with low soil temperatures, besides prices, driving farmers to a spring crop
which can be later planted that corn.
Still, on the trade front, "it appears Brazilian basis
levels are trying to stabilise after trading considerably weaker", Benson Quinn's
Brian Henry said.
"There were also signs of soymeal being priced," speaking of some demand to mop up cancelled
The signals from China itself on pricing was mixed, with
soymeal for September dropping 0.4% to 3,254 yuan a tonne on the Dalian futures
market, but September soybeans settling up 0.3% at 4,354 yuan a tonne.
But palm oil,
whose rise this month to the highest level since 2012 has been a big support to
the oilseeds complex, dropped 0.5% to 2,794 ringgit a tonne, amid fears over China,
a big importer of the vegetable oil.
In Chicago, soybeans retreated by 0.7% to $13.87a
bushel, falling below their 20-day moving average, and on course for a drop of
nearly 5% this week despite their bounce in the last session.
'Certainly a concern'
Among soft commodities, cotton
for May traded down 0.2% at 91.51 cents a pound in New York, little helped by
the worries over China, which is the top importer and consumer of the fibre.
From a chart perspective, Luke Mathews at Commonwealth Bank
of Australia noted that "in the past five sessions the cotton market has
rallied above 93 cents a pound on two separate occasions, but on both occasions
the market has been unable to hold the gains".
Indeed, levels around 93-94 cents a pound have a habit of
posing resistance to prices, although "only time will tell if this level again
acts as the Achilles heel on the current rally".
Nonetheless, from a fundamental perspective, "the recent run
of weak Chinese economic data is certainly a concern for the cotton bulls".