Morning markets: grains post gains, as crop report looms

Is the selling in grains over for now?

Chicago corn for March, the best-traded lot, is now in its sixth session without posting a contract low, and set course in early deals a Monday for a fourth successive close above its 20-day moving average, something that has not happened since August.

And Chicago wheat for March gained even more markedly, recovering from a contract low close to the last session.

As to how convincing these rises are, well, the suspicion is that much is down not to any marked changed in sentiment, but the prospect of a US Department of Agriculture Wasde crop report on Tuesday.

These briefings have a habit of moving markets, and the December edition is seen as likely to cut prospects for US stocks of both grains, a little, giving some support to prices.

And when investors have a stack of short positions which are showing healthy gains, there is always temptation to close up and book some profits.

Short covering

For corn, hedge funds in fact have already closed a stack of such positions, reducing their net short by more than 22,000 contacts in the week to December 3, regulatory data released late on Friday showed.

Still, that left them with a net short of more than 118,000 contracts, a historically high figure, and one which would until four months ago have been a record.

The Wasde is expected to cut to 1.871bn bushels, from 1.887bn bushels, the estimate for US inventories at the close of 2013-14 (both figures indicating very comfortable supplies, it has to be said).

'Imports by China discouraged'

Also hanging over corn is the worry over Chinese imports of US supplies provoked by the rejection of some cargoes for containing a Syngenta variety unapproved by Beijing.

"It is likely that China would come down hard on US cargoes of corn after unapproved genetically modified strain was found, unless the authorities decide to approve the strain," Vanessa Tan at Phillip Futures said.

"As such, we may see imports by China being discouraged especially when China is expecting a record corn harvest which would boost domestic surplus."

'Could shift demand to the US'

However, on the plus side for the grain is a South American reluctance to grow it in the face of weak prices compared with soybeans, which are anyway the default choice for Brazilian farmers.

Brazil's growers are, for their second. safrinha crop sown early in the calendar year, "considering planting a second crop of soybeans after the main harvest of soybeans, rather than corn, due to current low prices of corn as well as leftover supplies," Ms Tan said.

"Such a decision could shift demand to US corn instead, significantly supporting prices."

As an extra fillip, Brazil is, in its strained logistics, reportedly to prioritise soybeans too.

It was enough to help corn for March edge 0.4% higher to $4.35 a bushel as of 09:30 UK time (03:30 Chicago time).

'Looking very cheap'

Wheat did even better, gaining 0.6% to $6.54 a bushel in Chicago for March delivery.

But then, hedge funds have a large net short there too, of 64,000 lots as of December 3, down 2,000 week on week but the previous figure was the all-time high.

And the net short "has likely grown substantially since then", given the weak performance of wheat futures late last week, Jonathan Watters at Benson Quinn Commodities said.

Furthermore, prices of soft red winter wheat, the type traded in Chicago, are "looking very cheap on the world market", Mr Watters added.

Certainly, in Australia, Luke Mathews at Commonwealth Bank of Australia noted that domestic prices "remain strong from both an outright and relative perspective", standing some $30 a tonne above Chicago prices even after an Aus$2 a tonne fall to Aus$296 a tonne in Sydney, for January delivery.

'Seasonally cold'

Cold weather in the US, where temperatures in Montana have been 30 degrees Fahrenheit below zeio, is a worry too, in potentially threatening US winter wheat seedlings.

"The next five days look to be pretty dry and fairly cold," weather service said.

It will not be "as extremely cold as this past weekend, but certainly seasonally cold to below normal especially from Interstate 70 northward," the weather service said, a reference to a US highway which runs from Maryland to Utah though Indiana, Illinois and Iowa in the Midwest.

"The central Plains looks to be seasonally cold because of the shape and the pattern the jet stream," but, further south, "none of the cold penetrates into Oklahoma and/or Texas or across the Gulf coast states".

As to what damage this might cause, it is largely down to the degree of snow cover that the crops receive before the cold.

MDA Weather Services reported "spotty winterkill damage" in parts of Kansas and Nebraska.

'Farmer selling stepped up a gear'

Soybeans lacked many of the credentials that the grains had for support.

Hedge funds have a large net long holding in the oilseed, of more than 150,000 contracts, meaning that position closing ahead of the Wasde would likely drive prices lower.

Furthermore, the decent South American sowing conditions are encouraging soybean sowings, for first and potentially second crop in Brazil, as noted above.

And the oilseed is feeling a little pressure from elsewhere in the oilseeds complex too, with canola dropping 1.9% in the last session in Winnipeg, after the huge upgrade last week to the official estimate for Canada's output

"Canadian farmer selling reportedly stepped up a gear on Friday," CBA's Luke Mathews said, adding that "the market finally appears to recognise the importance of the current record large Canadian canola crop".

While Winnipeg canola for January edged 0.4 higher to Can$473.70 a tonne in early deals on Monday, it remains near three-year lows for a spot contract.

Brazilian bottlenecks

Still, soybeans have support from the fact that the Wasde is expected to cut the forecast for US soybean inventories, by 17m bushels to 153m bushels, making it less appealing for holders of long positions to cash in

Furthermore, there is still some "scepticism about just how much product Brazil will logistically be able to ship next spring", CHS Hedging noted.

Brazil's infrastructure bottlenecks have been a major hurdle to trade this year.

Meanwhile, China, the top importer, "is still expected to keep up a pretty decent appetite for soybeans next year," the broker added.

And indeed, the soy complex traded higher on the Dalian exchange overnight, with soymeal particularly strong, adding 0.7% to 3,369 yuan a tonne for May delivery.

Chicago soybeans for January gained 0.6% to $13.34 a bushel.

Mixed softs

Among soft commodities, New York cotton, which performed strongly in the last session on broad economic hopes, retreated 0.3% to 80.21 cents a pound this time, for March delivery.

But coffee maintained its recovery, adding 0.8% to $1,734 a tonne in London for January delivery, for robusta beans, while New York arabicas added 0.2% to 106.65 cents a pound for March.

Evening markets: US jobs data lifts cotton. Cold helps wheat
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