So was the last session's revival in grain prices a flash in
the pan, or the start of something more sustainable?
That was the key question in grain markets on Monday, after
a weekend which gave investors extra time to mull over the slew of US
Department of Agriculture data which showed US corn stocks as of December far lower than had been thought, and on
their way to a 17-year low.
inventories are to end 2012-13 smaller than had been expected too, and may not
get the refill this year that investors had expected either, with winter wheat
sowings coming in below forecasts.
'Likely to retune
So, while the data on soybeans
was more neutral, the default thinking was that crop prices, corn especially,
should be in for some kind of recovery from the six-month lows reached during
the opening sessions 2013.
Joyce Liu at Phillip Futures noted that the US corn stockpile
is now "sufficient to last less than three weeks.
"Given the current US corn situation and uncertainty of the
South American crops, together with strong domestic demand for corn feed, we
believe Friday's data are likely to retune market expectations and clear corn prices
out of their six-months low reached early last week."
Luke Mathews at Commonwealth Bank of Australia termed the
USDA corn data "relatively bullish" while Rabobank was less muted in its
"With remaining on-farm stocks at multi-decade lows, higher
Chicago corn prices are necessary to kick-start further US demand rationing,"
the bank said.
diminished supply outlook'
On wheat, the bank said that the "supply outlook in 2013-14
is now significantly diminished, with the lower-than-expected increase in
planted area likely to accompany high abandonment as only 33% of the US winter
wheat crop was in good or excellent condition as the crop entered dormancy".
But, of course, this report comes against a backdrop of fund
liquidation in agricultural commodities, one of the drivers behind a drop in
prices to six-month lows, with the improved prospects for South America's
newly-started row crop harvests another.
(It is perhaps no coincidence that cash heading into equity funds
hit $22.2bn in the first week of 2013, the second highest weekly figure ever in
data collected by EPFR, a funds research company, going back to 1996.)
Old crop vs new
And Richard Feltes at RJ O'Brien pointed out a potential
source of pressure, in the temptation among farmers to cash in on higher
"I suspect the farmer will be inclined to sell into a post-January
crop report rally which should follow through on the upside this week," he said.
"Whether or not March corn can clear its mid-November $7.63-a-bushel
highs remains to be seen, although a failure to do so would likely trigger more
And the outlook for 2013 crop contracts looks less
equivocally testing, with the prospect of large South and North American row
crop harvests ahead. US prospects for corn and soybean sowings this year have
only been enhanced by the relatively low winter wheat planting figure.
"Friday's report sharpens the contrast even more between
tight old crop corn supplies and abundant new crop supplies," he said.
"Bull spreading row crops and/or selling December corn futures
and November soybeans outright should be pursued."
Still, at least, even if fund selling does return, it has
already got a stack out of its system, with US regulatory data released late on
Friday showing managed money, a proxy for speculators, cutting its net long
position in Chicago corn futures and options for a fifth successive week, and to
the lowest since July.
For Chicago soybeans, the net-long position was cut to an
And while speculators raised a little their long exposure to
Chicago wheat, they remained net short, meaning short bets, which profit when
prices fall, outnumbered long ones, which benefit when values rise.
There was little sign of fresh fund selling as of 09:10 UK
time (03:10 Chicago time) anyway, when corn for March stood 1.9% higher at
$7.22 ½ a bushel, and March wheat up 1.9% also at $7.69 a bushel.
Soybeans for March were 1.4% higher at $13.92 ¾ a bushel in
"While tight US soybean stocks in the near-term are tight,
fresh supplies are already being harvested in Brazil," Kim Rugel at Benson
Quinn Commodities said.
"Soybeans will struggle versus corn and wheat with record
large crops on the horizon for Brazil and Argentina."
Still, the positive sentiment did not spread as far as palm oil, which eased 1` ringgit to
2,367 ringgit a tonne in Kuala Lumpur, continuing to feel pressure from data on
Friday showing Malaysian inventories at a record high last month.
"Malaysia's palm oil stocks climbed to a record 2.63m tonnes
in December, going against market consensus of a slight drop and fuelling
concerns that inventory levels may remain high for the first month of the year,"
Ker Chung Yang, at Phillip Futures, said.