PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 09:53 GMT, Wednesday, 11th Dec 2013, by Agrimoney.com
Morning markets: Egypt tender steadies wheat. Coffee drops

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."

'Price anchor'

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 supplies".

Still, as of 09:45 UK time (03:45 Chicago time), Chicago wheat was 0.6% higher at $6.42 a bushel for March delivery.

'Biggest surprise'

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".

Rebalancing time

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 fall'

Furthermore, some hedge funds are, with year-end approaching, taking profits on the hefty short positions they have racked up in the grain.

"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 rejected.

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 averages.

'Historically tight result'

Soybeans made 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 Chinese demand.

"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.

Profit taking

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 supplies."

'Bearish fundamentals'

Arabica coffee 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.

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