PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 08:33 GMT, Friday, 20th Dec 2013, by
Morning markets: corn futures underperform wheat, for once

Corn, which has been making headway at closing it discount to wheat this month, gave back some of its progress in early deals.

In fact, wheat was trying to buck this month's losing trend in Chicago, and head for what would be only its third positive close this month.

Of course this was only after the March lot, for a seventh consecutive session, set a contract low, this time of $6.08 a bushel. That was a fresh 18-month low for a spot contract too.

But corn fell even further, by 0.4% to $4.28 a bushel in Chicago for March delivery as of 08:30 UK time (02:30 Chicago time) , giving back the 20-day moving average regained in the last session, and which might have been expected to offer some technical support.

Chinese rejections

Not that there appeared much in the overnight news to warrant a decline in corn futures.

Sure, China said it had rejected a total of 545,000 tonnes in US corn cargoes as of December 19 on grounds of containing an unapproved genetically modified variety of the grain, so-called MIR 162, a Syngenta trait.

That is equivalent to nearly 30% of expected imports in November and December.

However, the market had earlier heard JC Intelligence peg the reject figure at 600,000 tonnes.

And there is a hope of resolution, with US-China trade talks this week.

Besides, South Korea appears to be buying a stack of the rejected corn.

'Holiday mode'

One factor which was not so helpful was a 0.2% rise in the dollar, as investors react to the start of easy monetary policy tapering as announced by the Federal Reserve this week.

A stronger dollar undermines prices of dollar-denominated commodities by making them less affordable to buyers in other currencies.

However, there are also some fund moves going on involving fund positioning, and seasonally low trading volumes, which make price moves hard to predict.

"The grain and oilseed markets have clearly moved into the 'holiday mode'," Darrell Holaday at Country Futures said.

'Fund rebalancing'

One seasonal factor believed to be going on is fund closing of short positions in corn, for profit-taking or otherwise.

"Fund rebalancing before the end of year may be behind a portion of Thursday's corn price gains," broker CHS Hedging said. 

"Funds are short corn and will need to buy corn to rebalance fund positions and may want to book profits prior to the end of the calendar year. "

In fact, the main index fund rebalancing is early in the calendar year - meaning many other investors may be buying in anticipation of index fund buying, besides taking healthy profits on short positions.

'Margins will be razor thin'

If that stops, corn prices look vulnerable to falling back on ideas of the huge US stocks left at the end of 2013-14, following a record domestic harvest this year, and with decent South American harvests to come.

"You can come up with your own guess to next year's carryout projection, but good luck finding a number remotely friendly," Mike Mawdsley at Market 1 said.

"One firm I respect has their estimate near 2.6bn bushels for corn and over 480m bushels for soybean carryout next fall.

"If you haven't done so yet, get your pencil out on 2014 crop breakevens. Margins will be razor thin."

OK, we get the message.

Wheat not in negative territory shocker

Wheat, meanwhile, at least managed to revert back to unchanged on the day, at $6.10 a bushel, with its performance this year, now down more than 20% in Chicago on a front contract basis, likely to mean some index fund buying here too.

OK, Germany revealed a 2.5% rise to 3.13m hectares in winter wheat sowings.

But that was not too unexpected, and less than the European Union average rise, although Strategie Grains on Thursday forecast that Germany's actual wheat output will decline in 2014.

In fact, Toepfer earlier this week estimated Germany's winter wheat area, the great majority of plantings, rising 3% to 3.22m hectares.

'Offers little hope'

Besides, there is nothing like a bit of capitulation to put a market back on the front foot.

"At best, Thursday's price action offers a hint that a legitimate correction is possible, but the trade needs more convincing that wheat has value," Brian Henry at Benson Quinn Commodities said.

"The potential for a short covering rally exists. However, Thursday's weak close did more chart damage, which offers little hope."

At Phillip Futures, Vanessa Tan said: "With lacklustre export demand for US wheat, coupled with abundant global supplies, we remain bearish on US wheat."

Furthermore, although Argentina has lifted by 500,000 tonnes to 9.0m tonnes its forecast for the domestic wheat harvest, concerns over strict curbs on exports remain.

'Seasonal profit taking'

Soybeans dropped too in Chicago, down 0.2% to $13.16 a bushel for March delivery, again a direction that might be anticipated given the large long position that speculators hold in the oilseed.

"Funds are long soybeans and we could continue to see some profit taking before the end of the year," CHS Hedging said.

One big unknown is the weather in Argentina, with hotter and drier conditions promoting talk of crop "stress".

However, many commentators remain sanguine over the risks.

Besides, Argentina's agriculture ministry increased its estimate of Argentine soybean plantings to 20.8m hectares, from 20.7m hectares.

Cotton firms

In New York, cotton did better, adding 0.1% to 83.37 cents a pound for March, feeling a little more support from US weekly export sales which, at 243,000 running bales, were up 39% week on week.

"Last week's result brings year to date sales to 70% of the USDA's total marketing year estimate," with most of the year yet to go, Luke Mathews at Commonwealth Bank of Australia said,   "although this lags the normal seasonal average of 73%".

Furthermore, stocks certified for delivery against New York futures continue to decline, dropping to 41,714 bales.

And Cotlook trimmed its estimate for world cotton production in 2013-14 by 100,000 tonnes to 25.4m tonnes.

Not a hugely significant downgrade in the scale of things, but a downgrade nonetheless.

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