PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 09:51 GMT, Tuesday, 25th Mar 2014, by
Morning markets: fund buying duels with Turnaround Tuesday

Tuesdays by repute in Chicago bring reversals of the grain price trend the previous session, meaning this time that losses should be on the cards.

And indeed, all three major Chicago contracts, corn, soybeans and wheat, posted losses in early deals.

But this Turnaround Tuesday looked nonetheless a weak version, with declines modest compared with the price gains in the last session, amid suspicious that fund money is indeed favouring agricultural commodities.

And why not when share markets are not coping so well with concerns over China's economy, besides the Ukraine crisis and, indeed, broader emerging market uncertainties?

Stocks fell 0.4% in Tokyo and by 0.2% in Sydney overnight, and by 0.5% in Hong Kong, although European markets made a positive start.

Ags vs shares

Richard Feltes at RJ O'Brien said: "Fund buying on Monday confirms that bulls continue to enjoy a strong tailwind from institutional capital looking for other opportunities, in the wake of only nominal year-to-date equity returns versus 9% first-quarter gains last year."

Managed funds had already having ramped up their net long positions in agricultural commodities this year.

Indeed, with prices now pushed well above major moving averages, it is "reasonable to assume that all three ag markets are dialling in the possibility of 2014 crop adversity", Mr Feltes said, echoing a caution from Macquarie on Monday about wheat.

"This is an important element to consider if summer growing conditions are more favourable than expected," he said.

'Potential bearish double whammy'

Besides, there is the prospect on Monday of two key US Department of Agriculture reports, on US prospective spring crop plantings, and on domestic grain stocks as of March 1.

"Recent corn longs in particular are vulnerable to a potential bearish double whammy of larger-than-expected stocks and acreage figures," Mr Feltes said.

Another brokers said that "the biggest impact on prices to watch out for" in Monday's reports "could be a sharply higher soybean acreage estimate".

While estimates so far had been generally around 81m-83m acres (bar a lowball Rabobank forecast) "we would not be surprised to see soybean acres at the higher end of guesses given the current price relationship between November soybean futures and December corn/September spring wheat futures".

Price relations are seen as having a big say in which spring crop farmers prefer.

"Higher soybean acres in the US and a record soybean crop in South America can quickly turn our tight supply situation in into an overly burdensome one," the broker said, cautioning that "soybean futures have a large amount of downside risk". 

'Prices can't stay in this area'

Mike Mawdsley at Market 1, concerned over the elevated level of soybean futures, said he was mulling put options for soybeans.

"Prices can't stay in this area for ever," he said.

"News out of China," the top soybean importing country, "isn't the best news for the soy complex," with continued talk of processors struggling to reduce imports against a backdrop of negative margins.

And "there is lots of talk of soybeans coming to the US from Brazil."

CHS Hedging noted that "Brazil soybeans remain discounted to US beans. The US premium is supposedly near three year highs to Brazil soybeans".

'Vulnerable state'

Still, it is not as if buyers have no fundamental cause for being upbeat on grain prices, given the situation in Crimea, which looks anything but over, including in agricultural commodity terms.

SovEcon cautioned on Monday of the potential for a "bottleneck" in Ukraine grain exports, and highlighted a reluctance by Russian farmers to sell grain, against a backdrop of rising prices and a weaker rouble, against which dollar-denominated crops represent a hedge.

Furthermore, the condition of US winter wheat continues to deteriorate, as confirmed in data overnight, with little hope of an improvement in the weather for now.

"According to meteorologists' forecast, the southern US Plains which has been hit by drought is also likely to remain dry for the next 10 days," Vanessa Tan at Phillip Futures said.

"This would put the crop in a vulnerable state as the winter wheat crop emerges from dormancy and enter a critical development stage without sufficient moisture."

CHS Hedging said: "Intermediate forecasts remain relatively dry across the central US bringing concern that hard red winter wheat will experiencing dryness stress as foliage begins to green up and grow."

'Deteriorating wheat pasture conditions'

US corn exports are proving strong, with data on Monday showing shipments last week at 1.14m tonnes, including one shipment to China, taking a little bit off the edge of overnight confirmation that China has indeed rejected a further cargo of US supplies said to contain traces of a genetically modified variety unapproved in Beijing.

And data on Friday showing strong placements of cattle on US feedlots signal strong demand on this score too.

"The increase in placements may be due to deteriorating wheat pasture conditions resulting in cattle coming to town earlier than normal, but the trend is positive for grain consumption in the near term," Mark Welch at Texas A&M University said.

And, with ethanol soaring too, hitting their highest level since July 2011 in the last session, corn futures for May beat only a modest retreat, standing down 0.4% at $4.88 a bushel as of 09:45 UK time (04:45 Chicago time).

Export dynamics

Soybean exports remain strong too.

The 26.9m bushels the US shipped last week may not sound so much, but it was nearly six times the amount needed to meet US Department of Agriculture estimates for shipments for the full 2013-14.

Furthermore, "China was the primary destination, at 53% of total inspections, with the majority loading off the Pacific North West", Kim Rugel at Benson Quinn Commodities noted.

This has in turn taken the edge off concerns over Chinese cancellations of US cargos, which were also boosted at the weekend when a meeting of Chinese crushers apparently resolved to stand by import deals (even if some are being resold back to America).

'Jitters will still be present'

In fact, Dalian soybeans for September added 0.2% to 4,343 yuan a tonne, with September soymeal soaring 1.7% to 3,385 yuan a tonne helping ease concerns over the Chinese market.

Elsewhere in the oilseeds sector, palm oil recovered too, adding 0.2% to 2,717 ringgit a tonne in Kuala Lumpur, despite data from cargo surveyors SGS and Intertek showing Malaysian exports down a little over 11% for the first 25 days of March.

In Chicago, soybeans for May stood down 0.4% at $14.20 a bushel.

Wheat for May stood down 0.7% at $7.09 a bushel, but was still giving back only a small portion of its gains of the last session.

"Even though Ukraine grain shipments are still continuing, jitters will still be present in the market as long as the conflict is not resolved," Phillip Futures' Ms Tan noted.

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