Tuesdays by repute in Chicago bring reversals of the grain
price trend the previous session, meaning this time that losses should be on
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.
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
Another brokers said that "the biggest impact on prices to
watch out for" in Monday's reports "could be a sharply higher soybean acreage
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
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
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
CHS Hedging noted that "Brazil soybeans remain discounted to
US beans. The US premium is supposedly near three year highs to Brazil soybeans".
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
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."
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
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
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
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
Wheat for May stood down 0.7% at $7.09 ¼ 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.