There's nothing like a wheat tender by Egypt, the world's
top importer of the grain, to help steady the ship.
Chicago wheat futures suffered their biggest fall in in
three months in the last session, during which the March lot set a contract low
of $6.35 a bushel, after the US Department of Agriculture lifted forecasts for
both domestic and world inventories of the grain at the close of 2013-14.
But wheat managed a bit of a bounce on Wednesday, helped by
the emergence of Egypt's Gasc grain authority with a request for wheat offers.
In fact, Gasc had been expected to return to the market ever
since, last week, cancelling its latest purchase, of 60,000 tonnes of Romanian
wheat, on grounds of incorrect paperwork by the winning merchant.
But its return last night, at a time when Iraq is in tender
too, helped raise the idea that there may be value at current levels.
'Negative effect on prices'
Furthermore, even the raised US inventory estimate does not
exactly represent a superabundance of the grain.
"The stocks-to-use ratio for US wheat stands at 23.6%, up
from 23.2% in November, but is still the lowest in five seasons," Mark Welch at
Texas A&M University said.
That said, inventories held by other major exporters are on
the rise, a factor which "tends to have a negative effect on US wheat prices",
Dr Welch added.
"Compared to the 2012-13 marketing year, wheat stocks in Argentina
are up 310,000 tonnes, Australia is up 1.106m tonnes, Canada up 4.793m tonnes,
the EU up 2.984m tonnes and the former Soviet Union up 2.086m tonnes."
Indeed, there are many who believe that the revival in wheat
prices will not last for long.
"We believe the large year-on-year increase in total US
grain supplies, because of larger corn output, and recent weakness in US corn
values will continue to anchor US wheat prices," Luke Mathews at Commonwealth Bank
of Australia said.
At Phillip Futures, Vanessa Tan said that "we may see further
[price] pressure coming from US wheat losing its shine to strong competitors
such as Canadian wheat, especially with a record large Canadian wheat output.
"This loss in competitiveness of US wheat is evident from
Japan's unexpected purchase of Canadian wheat," earlier this week, "bypassing US
Still, as of 09:45 UK time (03:45 Chicago time), Chicago
wheat was 0.6% higher at $6.42 ¼ a bushel for March delivery.
That released some of the pressure on fellow grain corn too, which was dragged lower by
wheat in the last session despite the Wasde report being, relatively, bullish
for the grain.
"Corn had the biggest surprise [in the Wasde] with increases
in fuel use and exports offsetting a small increase in imports," Dr Welch said,
noting that the US stocks-to-use ratio for corn now stood at 13.7%, down from
14.6% in the November Wasde.
And, while world corn stocks have now reached 63 days, in
terms of the length of consumption they represent, that is only just over the 10-year
average of 60 days, and well below the 20-year mean of 80 days.
That said, Dr Welch said that, in the virtual marketing programme
he runs, he was "ready to price my first sales of 2014".
Not many actual producers are, of course, ready to sell which
is one reason why Chicago corn prices have held up better than many investors
have expected in the face of a record US harvest.
And there may be further upward pressure on prices on the
way in the form of the commodity index fund rebalance, which looks set to take
an increasing profile now that the Wasde is out of the way.
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, and selling the winners.
Corn has been among the worst performers, down nearly 40% on
a front contract basis so far this year.
'Room for prices to
Furthermore, some hedge funds are, with year-end
approaching, taking profits on the hefty short positions they have racked up in
"There have been signs of corn short covering by the managed
money and this has helped corn's small rebound," one US broker said, if
sceptical that corn's price floor could hold for ever, with "heavy farmer cash
sales" eventually to bust through it.
"This may not be until spring of 2014 but we still think
there is room for prices to fall, especially considering the time limitations
of having full bins heading into another growing season."
As an extra downer, China, where the CNGOIC bureau raised by
2.7m tonnes to 217.7m tonnes its forecast for the domestic corn harvest, has
rejected another cargo of US imports on grounds of containing an unapproved
genetically modified variety.
This cargo, of 59,100 tonnes, follows 180,000 tonnes already
Still, for now Chicago corn for March edged 0.2% higher to
$4.37 a bushel, remaining resolutely above its 10-day and 20-day moving
small gains too, adding 0.2% to $13.41 a bushel for January, after themselves
suffering from wheat's weakness in the last session, which masked a broadly
positive Wasde for the oilseed, which cut the estimate for US stocks a little
further than investors had expected, and failed to upgrade the Brazilian
harvest, as forecast.
The US soybean stocks-to-use ratio of 4.6% is "unchanged
year-on-year and a historically tight result", CBA's Mr Mathews said, if
terming world oilseed supplies "comfortable".
Benson Quinn Commodities also highlighted the impact of
"Additionally, the trade has to respect profitable Chinese
crush margins despite rapidly increasing supplies," the broker said.
In fact, Oil World has pegged China's soybean imports in
2013-14 at 70m tonnes, 1m tonnes above the USDA forecast which attracted some derision
when it was first made earlier in the year.
Among soft commodities, robusta
coffee, unsurprisingly, fell on profit-taking, standing down 1.2% at $1,771
a tonne in London for March delivery, after its 4% jump in the last session,
prompted by Vietnamese farmers withholding supplies, despite a record harvest.
"Robusta coffee futures on Liffe soared yesterday upon
renewed concerns regarding Vietnamese supplies as farmers continued to hold
back selling of robusta coffee beans," Vanessa Tan at Phillip Futures said.
"This support is present, despite the Vietnamese harvest
being two-thirds complete, as the situation looks bullish for near-term
for March, which saw smaller gains in the last session, retreated 0.3% to
109.95 cent a pound.
"The main fundamentals in the Arabica coffee market are
still bearish as oversupply still plagues the market," Ms Tan said
With expectations of "a large crop in Brazil next year and a
recovery in Colombian output", the bean's "bearish fundamentals" should "keep a
lid on prices" she said.
However, raw sugar maintained its recovery, adding 0.5% to
16.70 cents a pound, after the surprise slowdown in output in Brazil's Centre
South region, as revealed by Unica data on Tuesday.