Leonardo Pisano Bigollo, better known as Fibonacci, was a 13th
century mathematician responsible for popularising a number system whose uses
have spread to commodities trading today.
Advocates believe the ratios proposed by Fibonacci offer
clues to how long price rallies, or routs, may last, and how far they may go.
And that has some special bearing on trading in Chicago corn futures today, after achieving in
the last session an eighth successive negative close, their longest losing
streak in nearly three years.
Mike Mawdsley, at broker Market 1, said: "Eight days is a
Fibonacci number and $6.94 ½ a bushel," near where it closed the last session, "was
a 76% retracement of the winter rally," another Fibonacci point.
"Thus at least a bounce from here would be expected," he
said, if adding that "there are no rules that say it has to".
Which was fortunate, as corn for March, while managing some
upward movement in early deals, foundered after that run got as far as $6.99 a
bushel, but failed to go back through the psychologically-important $7-a-bushel
Indeed, the cocktail of negative news which has depressed
other crops too, sending Chicago wheat to its lowest close since June in the
last session, continued to plague sentiment.
Richard Feltes at RJ O'Brien listed "continued fund
liquidation, concern over Barclay's halt to ag speculative trading, the improving
moisture outlook for southern Brazil/ central Argentina, quiet cash markets".
Also, Mr Feltes mentioned the "negative new crop price
implications" of Monday's US Department of Agriculture baseline report, giving
long-term, but preliminary, crop forecasts that, as far as 2013-14 numbers go "will
likely be confirmed by the USDA Outlook Forum next Friday".
It should be noted that there is some scepticism over the
good for now, in crop terms, that the better weather outlooks imply.
In Argentina, "light and scattered showers this week will
provide limited relief from dryness, especially in Buenos Aires in Buenos Aires",
weather service MDA said, if flagging the potential for "more significant
improvements in soil moisture" should heavier rains next week appear as
It is a sensitive time now for South American corn and soybean crops, making weather a big
factor in these markets.
For US wheat,
sure some dry Plains areas are receiving moisture needed for drought-pressed winter
wheat seedlings, but just how far does it tip the needle?
"Precipitation across the US Southern Plains over the coming
week is expected to provide a positive boost to yield prospects. However, much
more follow up moisture will be needed," Luke Mathews at Commonwealth Bank of
Furthermore, for corn, there was the potential for taking a
more bullish view of data due later on weekly US ethanol production, which looks
to be recovering as some of the 15% plus output capacity comes back onstream,
with reopenings rumoured at four Nebraska plants, including a Valero one.
"With improving margins and capacity increasing we should
see improvements forthcoming," broker Benson Quinn Commodities said.
"Last week's report showed zero imports, and another week of
limited imports would be encouraging."
However, if investors needed any further room for caution, South
Korea's largest feedmaker, Nonghyup Feed, issued a tender for up to 195,000
tonnes of corn, but excluded US origin, a blow to hopes for a pick-up from this
route to America's feeble pace of exports of the grain in 2012-13.
Corn for March stood down 0.3% at $6.94 ½ a bushel at 09:15 UK
time (03:15 Chicago time), exactly at the Fibonacci level, in fact.
US vs French
Wheat provided no
support either, falling 0.3% in Chicago to $7.30 a bushel, for March delivery,
although remaining above the last session's seven-month low (of $7.25 ½ a
In fact, the news from Nonghyup Feed was better for Chicago
traders on this score, with the feedmaker seeking 70,000 tonnes of wheat from
either Canada or the US.
But Algeria, which is also tendering, and likely to purchase
far more, looks less of a support, given its preference for purchasing from
France, with which it has cultural ties.
"US soft wheat is offered at a significant discount to the
EU, but I wouldn't be surprised if Algeria overbuys the EU offer," Benson Quinn
"The March/May spread on Matif remains inverted, which is a
sign that EU shouldn't offer wheat. But they have posted offers at levels below
replacement costs in the past."
'Little in the way of
Still, the discount in US prices should nonetheless provide
some support, in making the grain appealing to other buyers.
"The oversold nature of these markets give me little reason
to want establish new speculative short positions near these levels," Benson
Quinn's Brian Henry said.
"However, momentum studies continue to indicate strong
possibilities of lower prices in the near future, as the daily charts offer
little in the way of support and the weekly charts bring another $0.30 a bushel
of weakness into play."
CBA's Luke Mathews also confirmed ideas that investors had
expected on Tuesday some downgrade to the official estimate for Australia's
2012-13 wheat crop, rather than a 42,000-tonne upgrade to 22.1m tonnes, a
figure he said was "higher than most private estimates".
As for soybeans,
they continued to suffer from ideas of reviving South American crop ideas at a
time when China, the biggest importer, is absent from the market for its lunar
new year holidays.
That said, the demand picture may get some support from industry
data later in the week on last month's US crush, expected to come in at
160m-162m bushels, above the 159.9m bushels in December and the January record
of 162.4m bushels.
And, as RJ O'Brien's Richard Feltes said, "the magnitude of
March-to-August US soy rationing versus last year is daunting".
There was a "need to cut March-to-August US soybean use by
one-third compared with a year ago".
'Taking a beating'
However, he also flagged the potential negative from ideas
that US livestock feeders, having earlier in the season, unusually, turned to
Brazil for corn, now buying soymeal from there too.
"I suspect front-end soybeans are taking a beating amid talk
of South American soymeal working into south eastern US feed markets this
summer, as a partial offset to tightening summer soymeal supplies."
Indeed, Mr Feltes recommended looking at soybean spreads, and
exploit a "strong tendency" for "May soybeans to gain on deferred July and November
options from late February onwards".
Spreading may look all the more appealing now the
complication of the so-called "Goldman roll", when followers of its ag index
switch from near-term to more distant contracts, is past.
In fact, soybeans for March dropped 0.3% to $14.17 a bushel,
marginally better than the 0.4% drop to $14.04 ½ a bushel suffered by the May
Elsewhere in the oilseeds complex, Kuala Lumpur palm oil returned from holiday in poor
form, tumbling 1.9% to 2,512 ringgit a tonne on its first trading day of the
Besides playing catch up with rival vegetable oil soyoil, down 1.0% in Chicago so far this
week to 50.87 cents a pound for March, palm had the negative of Malaysia Palm
Oil Board data showing stocks falling, but not as far as investors had
Malaysia's inventories dropped 1.9% to 2.58m tonnes, above a
consensus forecast of 2.55m tonnes.
At least some soft commodities got off to a firmer start, including
New York raw sugar for March, which edged 0.3% higher to 18.13 cents a pound.
Besides a caution from Kingsman that it may already be
profitable at these prices for Brazil's mills to turn cane into ethanol rather
than sugar (albeit a dynamic which would not come into force for another couple
of months, when the country's crush season starts), premiums for Thai sugar
over futures are rising.
Thailand, the world's second-largest sugar exporter after
Brazil, earlier this month cut its forecast for sugar output in 2012-2013, to
9.4m tonnes from 10m tonnes, citing poor rainfall.