Grains and oilseeds, having bucked their losing streak in
the last session, faced the Chicago phenomenon of the Turnaround Tuesday.
This, by repute, sees futures reverse the trend of the previous
session – implying losses in store this time.
And sentiment was hardly helped by a small uptick in the
dollar, making dollar-denominated exports such as many commodities less
appealing, and by falls in Asian share markets.
Japan's Nikkiei index shed 0.9%, as did Hong Kong's Hang
Seng, while Sydney stocks lost 0.5%.
And, signally, the Asian weakness spread into agricultural
commodity markets there too.
Crude palm oil
futures extended their 2013 retreat – they have risen only in one session so
far this year – easing 1.2% to 2,388 ringgit a tonne, depressed by expectations
that Malaysian inventories remain high.
Official data on Thursday will show stocks at 2.5, tonnes, a
little below November's top of 2.56m tonnes, with lower exports just about
balancing a drop in output.
In China, Dalian soybeans
The fall was not much, by 2 yuan to 4,739 yuan a tonne, but
did little for sentiment in Chicago, which has seen Dalian prices, and talk of
strong crushing margins in China, as a major support to soybean futures.
'Supply risk on the
If that was one depressant to Chicago values, the increasing
expectations for South American soybean and corn harvests were another.
Consultancy Clarivi on Monday became the latest commentator
to nudge higher its forecast for the Brazilian soybean harvest, by 110,000 tonnes
to 83.11m tonnes, ahead of Conab data on Wednesday which look set to be
particularly closely watched.
Conab, the Brazilian crop bureau, currently has the domestic
soybean harvest at 82.6m tonnes.
At broker RJ O'Brien, which also keeps close tabs on Brazilian
crops, said that "we think the current weather pattern suggests supply risk is
on the upside".
Chicago soybeans for March eased 0.1% to $13.87 a bushel as
of 08:20 UK time (02:20 Chicago time) looking for their fifth decline in six sessions.
Grains at least managed gains.
Cargill's Australian AWB grain handling business took a more
cautious stance on prices than the likes of Societe Generale.
"We expect international wheat prices and the market to be subdued until there is a clearer picture
on the northern hemisphere weather market in March /April this year," AWB's
Richard Williams said.
However, one big plus for grains is the prospect on Friday
of a slew of US Department of Agriculture data, including the benchmark Wasde
world crop supply and demand briefing, US winter wheat sowings data and grain
Not that the data themselves are necessarily expected to be
But they are expected to be market moving, especially in
corn futures, which on the January mega-data day have undertaken limit moves in
five out of the last six years.
'Wide range in trade
And the range of estimates for inventory data, on corn
especially, indicates the level of uncertainty over what Friday will produce.
RJ O'Brien's Richard Feltes said: "It is interesting to note
wide range in trade estimates of December 1 US stocks—750m bushels in corn, 300m
bushels in soybeans and 200m bushels in wheat.
"The wide range in corn stocks stems mostly from widely
divergent trade views on final 2012 corn production - 475m bushels from high to
"I suspect trade will be cautious this week given well known
volatility surrounding January crop reports."
Another potential plus point for the grains complex is,
ironically, the prospect of large selling by index funds expected to sell a
stock Chicago contracts as part of the annual rebalancing process, which rejigs
portfolio weightings back to those of the index they follow.
This is occurring at a time when speculators have rebuilt a
healthy net short position in Chicago wheat.
"The trade is very likely positioned the way it wants to be
with the index fund rebalance," Brian Henry at Benson Quinn Commodities said,
noting the lack of spread between Chicago and Kansas wheat futures, even though
the former faces selling by index funds, and the latter buying.
"Don't be surprised if the short in Chicago proves to be an
active buyer of an index fund offer, if it happens at all."
At Commonwealth Bank of Australia, Luke Mathews said that "further
speculative short covering is probable in the lead up to Friday's much-anticipated
USDA Wasde and winter wheat planting reports".
'Begin to turn the
And could this spark something of a most sustainable recovery
"Another day of higher price action," after a late flourish
took prices solidly into positive territory in the last session, "followed by a
firm close could begin to turn the tide a little bit", Mr Henry said.
"The bullish factors in the wheat market remain the oversold
conditions and the fund short in Chicago."
There is the prospect of a boost to US exports from lower US
wheat values too, with rumours continuing that European buyers are in the market
for soft red winter wheat (the type traded in Chicago) while Brazil is also on
the prowl for North American milling wheat.
Brazil's usual supplier, Argentine, has suffered a poor
harvest, hurt by heavy rains and a plunge in sowings.
Wheat for March added 0.4% to $7.54 ¼ a bushel, while March
corn gained 0.2% to $6.86 ½ a bushel.
'Global supplies will
Among soft commodities, cotton
eased 0.5% to 75.35 cents a pound for March delivery, despite the USDA foreign
staff in New Delhi estimating the Indian crop at 25.5m bales, 300,000 bales
below the official USDA estimate.
"This suggests global supplies will be trimmed when the USDA
releases its official WASDE report this Friday," CBA's Luke Mathews said.
"India will only be a small cotton exporter in 2012-13
compared to the past few seasons."
New York raw sugar,
which Morgan Stanley identified as a major winner of the rebalancing process,
gained 0.7% to 19.00 cents a pound for March.
"Index fund rebalancing is expected to support values this
month, although we argue fund rebalancing is not a reason to develop a longer
term bullish view on the commodity," Mr Mathews said.