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Morning markets: corn futures shy away from technical battle

For many assets, Thursday brought a somewhat negative note, blamed on one of those market paradoxes, that good news can be bad for prices.

The good news is the agreement between Democrat and Republican negotiators over a US budget deal, to be taken to the House of Representatives as soon as today, followed by the Senate, cutting the chance of yet another fiscal cliff fiasco.

The bad news, from a market perspective, is that such accord is seen as boosting the prospect of an imminent deceleration by the US Federal Reserve of its monetary stimulus programme.

And that depressed shares in Asia, which fell 1.1% in Tokyo, 0.5% in Hong Kong and 0.8% in Sydney, with stocks opening down 0.5% in Frankfurt London too.

Cotton falls back

Cotton markets, which have recovered in part on better US economic prospects, took a negative turn too, falling 0.3% to 82.25 cents a pound in New York for March delivery as of 10:00 UK time (04:00 Chicago time, 05:00 New York time), although still among its highest levels of the last couple of months, and up more than 7% from a late November low.

The fibre, as an industrial commodity, tends to move more in line with broader economic sentiment than food commodities, for which demand tends to be less volatile.

At least rubber, another industrial ag, had signs of buoyancy in crude to help it, with oil the base of synthetic alternatives to the tyre ingredient.

Crude is being underpinned at about $110 a barrel, up from a November low of just under $103 a barrel, by scepticism of a resumption in Libyan oil exports.

Rubber for May stood unchanged at 284.10 yen a kilogramme in Tokyo, and amongst its highest levels of the last six months.

'Strong profit margins'

There were different reasons cited for a retreat in corn, although the grain itself has gained an industrial dimension with the growth of the ethanol industry, and ethanol prices tanked in the last session after data showed US production last week at the highest since December last year.

It was also the third strongest week ever for ethanol output.

Still, ethanol margins are reckoned to be high, at some $0.70-$1 a gallon.

"Strong profit margins for ethanol came about as there is high demand for the biofuel and prices of US corn are still near three-year lows," Vanessa Tan at Phillip Futures noted.

Technical factors

Corn is also getting some support from ideas of funds closing some of their huge net short position, taking profit ahead of year end, while the index fund rebalancing exercise early in 2014 is looming too.

In this exercise, early in the calendar year, funds adjust weightings to return individual commodities to the levels stipulated by the index they follow meaning buying 2013's poorest performers, eg corn, and selling the winners.

As an extra fillip for the grain, there have been no deliveries against the expiring December contract, which goes off the board tomorrow.

Deliveries against expiring contracts imply better prices for sellers in futures than on the cash markets, and question whether futures values are a touch high.

Chart congestion

But not all the technical factors are quite so gung ho for corn, with charts leaving many investors a little nervous.

The March contract has, in a positive price sign, managed to close above its 10-day and 20-day moving averages for six successive session, a feat not achieved since August.

But that has bought it close to its 50-day moving average, at a little under $4.41 a bushel which it has not touched for more than three months.

Furthermore, for followers of Fibonacci analysis, it is close to the 23.6% retracement level, at a bit over $4.42 a bushel, of the move from the August high to early-December low in the price of the March contract.

Has the corn rally got the power to break through these levels?

Chinese snub

Investors have reason to doubt, given the record US harvest, which has rebuilt inventories and reduced the need to compete hard for supplies, and the ongoing concern over Chinese rejection of imported US supplies on grounds of containing an unapproved genetically modified variety.

"There is continued speculation that more US corn cargoes have/will be rejected by the Chinese because of unapproved GMO strains," Luke Mathews at Commonwealth Bank of Australia said.

In fact, the corn refused entry to China is still finding homes elsewhere.

"Asian importers are snatching up rejected corn out of China, with South Korea taking the lion's share," CHS Hedging said.

"Some is on contract with early delivery while some is sold with a discount."

Nonetheless, corn for March eased 0.5% to $4.37 a bushel.

'On the back foot'

That weighed on fellow grain wheat too, which had been trying something of a revival, after setting contract lows in Chicago, Kansas and Minneapolis earlier this week.

Sure, the grain remains somewhat under pressure, after the US Department of Agriculture in Tuesday's Wasde report raised estimates for both domestic and world inventories as of the close of 2013-14

"US wheat markets are on the back foot given weak chart signals and a bearish global supply outlook," Mr Mathews said.

"However, concern about potential winterkill in the US Plains" are offering some support to prices, as cold weather continues to beset major growing areas.

Well oversold

Furthermore, US supplies appear to be competitively priced against world supplies, although the failure to tender American wheat to this week's tender by Gasc, the Egyptian grain authority, meant a chance for transparency on this point was missed.

And, technically "'oversold' doesn't even begin to describe the Minneapolis chart", Benson Quinn Commodities said.

In fact, Minneapolis spring wheat for March added 0.2% to $6.70 a bushel, while Kansas City hard red winter wheat for March edged 0.25 cents higher to $6.85 a bushel.

Chicago soft red winter wheat for March was 0.1% lower at $6.40 a bushel.

'Good job of covering needs'

And soybeans weakened too, down 0.6% at $13.36 a bushel for January delivery, undermined by a softening US cash market, besides continued benign conditions for the South American crops to be harvested early in 2014.

"There's talk that US crushers have done a good job of covering needs through January and have placed more focus on selling production," Brian Henry at  Benson Quinn Commodities said

"Domestic soymeal values have hinted at weakening in many locations, while interior soybean values have been mixed."

Dalian softness

Furthermore, Chinese soy prices overnight were not too inspiring, with soymeal for May closing down 0.3% at 3,361 yuan a tonne on the Dalian, where May soyoil eased 0.2% to 7,226 yuan a tonne.

In Chicago, soymeal for January shed 0.6% to $436.10 a tonne, while soyoil for January dropped 0.3% to 40.29 cents a pound.

Elsewhere, Kuala Lumpur palm oil was weak too, down 0.5% at 2,618 a tonne, weakened by softness in rival vegetable oil soyoil but also by data showing a fall of some 8,200 tonnes, to 774,207 tonnes, month on month in imports by India, the top buyer, the first decline since August.

Data later

Movement in grain markets later may depend on the results of US export sales data for last week, expected to come in at 300,000-500,000 tonnes for wheat and 600,000-750,000 tonnes for corn.

For soybeans, sales are expected at 750,000-950,000 tonnes.

Evening markets: ethanol fuels corn resilience to China snub
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