The new year may be beginning on a tentative note for shares, but agricultural commodities
managed a generally positive start.
Shares struggled on Monday after HSBC's monthly survey of China's
service sector showed a purchasing managers' index dropping from 52.5 in
November to 50.9 last month,
That was only just above the 50.0 neutral level and
indicated "marginal" growth.
It was also the lowest figure since August 2011.
Shanghai shares fell 1.8% to their lowest in five months,
while Tokyo stocks slumped 2.4%.
But while China is a huge buyer of commodities, agricultural
ones included, the impact on raw material markets was muted, perhaps because
the data concerned the country's services sector rather than its factories.
slumped 1.1% in London in the last session, eased, but only by 0.1%.
And corn, over which
there are already concerns over Chinese imports, after the rejection of a
succession of US cargoes for containing a variety not yet approved in Beijing, added
0.5% to $4.25 ½ a bushel for March delivery, as of 09:10 Uk time (03:10 Chicago
And this was despite a report from the official Xinhun news agency
that China had rejected 601,000 tonnes of US corn, more than the 545,000 tonnes
refused by December 29, and implying that more cargoes had been affected than
many investors had thought.
'Fund rebalancing is
But corn has one big factor in its favour, and that is,
ironically, its dismal performance in 2013, when it fell 40% in Chicago on a
spot futures contract basis.
That means that some - if only temporary - buying pressure will be imminent when
index funds come to rebalance their portfolios, readjusting weights back to
mandated levels, meaning purchases if poor performers, and sales of 2013's winners.
"Buying for fund rebalancing is anticipated this week," CHS
Benson Quinn Commodities said: "Additional short-covering
could lead to higher prices as trade looks ahead to the index fund rebalance,"
besides to a series of key US Department of Agriculture reports scheduled for
Hedge funds had a net short of some 88,000 lots as of Christmas
Eve, although fresh data on positioning will be released later on Monday.
It also helped that rival grain wheat was in the ascendancy, again in part on the prospect of fund rebalancing,
with wheat prices down 22% last year in Chicago.
But there was more to it than that, with ideas that US
prices may have reached an appealing level for buyers, after their
underperformance of last month, when Chicago futures fell 7% compared with,
say, a 0.4% drop in Paris wheat.
Such thinking gained credence with the details of the submissions to the tender
by Egypt's Gasc grain agency last week.
While Gasc's huge 535,000-tonne order did not include any US
wheat, that looked only down to transport costs, and potentially talk of
shipping delays thanks to the cold weather in the US.
US hard red winter wheat was notably cheaper, excluding
shipping, than Black Sea or French supplies.
Indeed, there has been "talk of US hard red winter wheat trading
into Egyptian private buyers", Brian Henry at Benson Quinn Commodities said.
"Perhaps, we don't get to point that US wheat takes favour
over EU and Black Sea supplies into the Mediterranean, but current values could
and should open up better opportunities into Latin America/Brazil."
"There seemed to be a different attitude towards the wheat
market" in the last session "as it feels like many in the trade are on the
verge, or at least, have the potential to get caught short", he added.
"While the wheat markets aren't exactly screaming 'buy me',
all three markets [Chicago, Minneapolis and Kansas] are giving signs that they
have some value."
As an extra help, there are growing ideas that the US cold
may threaten some winter wheat seedlings, especially in Kansas, the top
wheat-growing state, and Nebraska, where temperatures are today expected to hit
minus 5-15 degrees Fahrenheit (minus 21-26 Celsius).
And there are concerns too that Argentina may shut down
exports after its poor crop.
Soft red winter wheat for March was 0.4% higher at $6.07 ¾ a
bushel in Chicago, while hard red winter wheat gained 0.5% to $6.45 ½ a bushel,
and Minneapolis spring wheat 0.2% to $6.31 ¾ a bushel.
Against such as background, soybeans gained too, although by a modest 0.1% to $12.72 a bushel
for March delivery, with US cold or index fund buying not such an issue.
(Chicago soybeans lost 7.5% last year, in line with the
average for agricultural commodities, so limiting rebalancing needs.)
Strong US export and export sales data on Friday eased some
of the concerns about a lack of Chinese interest as South American supplies
come onstream, with the Brazilian harvest now in its early stages.
Indeed, prices on China's Dalian market rose overnight for a
fourth successive session, this time by 0.2% to 4,500 yuan a tonne for May delivery.
More China data
Many soft commodities started strongly too, including New York
cotton, which gained 0.9% to 83.70
cents a pound for March delivery, backed by Chinese data.
China, the top cotton importer, producer and consumer, has stockpiled
5.0m tonnes of 2013-14 crop, after buying 331,160 tonnes in the latest week under
its producer support programme, official statistics showed.
Meanwhile, China Cotton Association said that domestic cotton
plantings would fall 8.9% to 4.25m hectares this year thanks to rising costs
and reduced profit expectations from the crop, and uncertainty ahead of
potential reforms to the support programme.