PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 09:47 GMT, Wednesday, 4th Dec 2013, by Agrimoney.com
Morning markets: Chinese rejection of US corn dents prices

Is it because, after five weeks of increasingly bearish positioning on agricultural commodities, hedge funds are taking a break?

The latest US regulatory data showed speculators cutting their net long position in ags for a fifth successive week, the longest such selling spree this year, and hinting that a pause in the trend, if not a reversal, may be in the offing.

Certainly, some of the agricultural commodity sector's notable losers of late managed a recovery in early deals, with raw sugar setting course for ending a losing streak which has lasted 10 sessions, and has taken it to a nine-week low.

The sweetener rose 0.2% to 16.84 cents a pound in New York for March delivery as of 09:35 UK time (02:35 New York time, 03:35 Chicago time), although it was not clear that anything else except profit-taking on short positions was behind the rise.

'Significant headwinds'

Analysts are still queueing up to give negative comment on the sweetener, with Australia & New Zealand Bank cautioning of the potential for prices to fall below 16 cents a pound next year.

At Phillip Futures, Vanessa Tan said: "We remain bearish on the raw sugar market due to the current supply-demand dynamics facing the market.

"Abundant global surplus of raw sugar supplies, coupled with lacklustre demand, will continue to pressure raw sugar prices."

And at Commonwealth Bank of Australia, Luke Mathews said that "the current focus on strong Indian and Thai production prospects continues to provide significant headwinds for the global sugar market".

Still, there is nothing like a strong consensus for provoking a contrarian trade…

Palm up

New York cotton futures, which have already managed a Lazarus moment in recovering from a 10-month low reached in late November, in fact saw their rally stall, despite data late on Tuesday showing a drop in stocks certified for delivery against the contract.

Certified stocks fell more than 23,000 bales to 225, 614 bales. Still, futures for March eased by 0.2% to 78.47 cents a pound.

But in Kuala Lumpur, palm oil looked like snapping a three-day losing streak, adding 1.5% to 2,656 ringgit a tonne for February delivery, helped by concerns over rains which have flooded some Malaysian production areas.

Prices had been depressed by cargo surveyor data showing a drop in Malaysian palm exports, by 4.8% according to Intertek, while the Malaysian Palm Oil Association  said that output for November 1-20 rose 4.1%, an increase unexpected at this time of year.

"The increase in production could be due to delayed harvesting from older palm trees," Phillip Futures said.

Chinese rejection

But in Chicago, the trend of recovery faced, with grains, while in early deals continuing a revival which has stumped many commentators, reverting to a downward course which has appeared more justified by fundamental news.

This is especially so for corn, whose rise in the last session defied growing ideas that China's initial rejection of a US cargo last month for containing an unapproved genetically modified variety could be setting a trend.

A series of reports emerged from China itself on Wednesday over the rejections, with news agency Xinhua saying that the General Administration of Quality Supervision, Inspection and Quarantine watching has rejected 120,643 tonnes of corn imports from the US.

The watchdog "has notified US authorities of the event, hoping they will order the corn exporters concerned to strengthen inspection and quarantine of exports to China in conformity with Chinese law and regulations", the agency said.

'Could pressure prices'

The prospect of a breakdown in US corn exports to China matters when there are some 2m tonnes of American corn heading that, with a further 3m tonnes purchased but not despatched yet.

"The future of US corn exports to China could pressure US corn prices going forward," Vanessa Tan at Phillip Futures said.

In China, one feed mill executive told Reuters: "We are completely lost and have no idea how to deal with the situation. Not all corn cargoes were blocked for entry, but it is a messy situation."

And, against a background of a record US harvest, Chicago corn for March stood 0.6% lower at $4.28 ½ a bushel.

Data later

Wheat struggled a bit too, undermined in part by its fellow grain, but also facing pressure from the prospect of data later for the Canadian harvest expected to come in huge.

Statistics Canada is expected to show the crop at a record 33.8m tonnes, with some estimates as high as 35m tonnes, above the 33.2m tonnes pencilled in by the US Department of Agriculture, whose data set global benchmarks.

A Canadian dollar trading at two-year lows, "combined with massive Canadian supplies will spur interest in securing supplies from that origination", Brian Henry at Benson Quinn Commodities said.

As an extra idea of a well-fed export market, India is selling 650,000 tonnes too over the next three weeks.

'Exceptionally well bid'

That said, the wheat market in the last session showed its ability to deal with higher production estimates, closing higher despite an upgrade by Abares to Australia's crop, by 1.75m tonnes to 26.2m tonnes.

And Sydney east coast wheat futures maintained their buoyancy on Wednesday, adding 1.0% to Aus$300.00 a tonne for January delivery, the contract's highest close in a year.

OK, the east coast crop has underperformed. But even wheat futures for Western Australia's crop, the seat of Abares' upgrade, rose 0.4% to Aus$297.50 a tonne for January.

"ASX wheat markets remain exceptionally well bid, despite upgraded Australian production targets," CBA's Luke Mathews said. 

With Russian prices rising too, up $2 a tonne to $290 a tonne last week for export from the Black Sea, according to Ikar, Chicago wheat at least held steady at $6.68 ¼ a bushel for March delivery.

'Slowing of demand'

Soybeans fared best, despite some concerns for demand, after a third day, on Tuesday, without the USDA unveiling any large export sales through its daily alerts system.

With soybean export sales last week braking rapidly in early December last year, the current lapse "has people in the trade talking about a slowing of demand given the recent rally, most notably for soybeans", one US broker said.

Furthermore, there are ideas that China, after rejecting US corn cargoes, may turn its attention to purchases of US soybeans.

"Thoughts are that China may be looking to cancel up to six cargoes of nearby US soybean purchases," CHS Hedging said.

Another broker said: "We still feel that soybeans could be pressured by China looking to source soybeans out of South America and the potential for cancellations due to over buying from the Chinese in fear that a problem in South America could delay spring shipments."

'Magnitude of export demand'

However, there have been no signs yet of Chinese cancellations.

Indeed, even Oil World, which has been negative about soybean prices, had some comforting words on the subject, lifting to 69.7m tonnes, from 69m tonnes, its forecast for China's overall soybean purchases in 2013-14.

"China is serious in replenishing soybean stocks to more comfortable levels and has sufficient US soybeans in the books for early 2014 delivery to have some flexibility in case of a repetition of the substantial Brazilian export delays," Oil World said.

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