Many investors were predicting something of an early-2013
comeback in grain and soybean prices, even as values hit a succession of
six-month lows late last year and earlier this month.
The likes of Goldman Sachs and Morgan Stanley, in essence,
cautioned that higher values were needed to ration demand, and to incentivise
huge sowings this year, even before Friday's US Department of Agriculture data
which signalled a surprisingly high level of domestic corn and wheat use.
And the rebound in prices bedded in further on Wednesday,
amid ideas that the fund liquidation evident in the late-2012 correction may
indeed have hit the buffers.
Richard Feltes at RJ O'Brien - highlighting recent outperformance
of grains over the CRB commodities index, and "some evidence" of fund buying in
the last session - said that this signalled a "possible end to the steady fund
liquidation that has prevailed since the mid-August peak in managed fund grain
And there has indeed been some turn in the tide of fundamental
news, above the USDA data.
Concerns are rising over drier South American weather, for
southern Brazil and much of Argentina, grabbing headlines (even if conditions
look more of a threat for corn than soybeans, according to respected crop scout
Models suggest that "Argentina, south east Brazil stay dry
for the next 10 days", said weather service WxRisk.com, even if the key central
Brazilian soybean districts will "see heavy rains".
The world is relying on healthy South American crops to
refill silos depleted by drought-hit harvests there, and in the US, last year.
'Cold air mass'
Indeed, the US drought is re-emerging as an issue, especially
for winter wheat, with the Plains trapped in another dry spell, and with cold
weather approaching which may pose a risk to any crops without a snow blanket.
"A stronger and much larger and colder air mass will begin
to drop southward from Canada into the central and upper Plains and all the
Midwest starting on January 20," WxRisk.com said.
"This air mass will bring temperatures to it least -20
degrees Fahrenheit in many areas of the upper Plains on the morning of January
21, 22 and 23."
"Cold in US wheat country, tighter supplies for wheat and
corn than thought, and now talk of a dry spell in Argentina are perking the
bulls ears," Mike Mawdsley at Market 1 said.
'Most bullish among
OK, some interpretations of the news were more cautious on
"It is still too early to assess the real impact of the
water deficit on the production," Paris-based Agritel said.
Joyce Liu at Phillip Futures said: "Forecasts of sustained
dry weather have raised fears that that more damage could be brought onto the
US winter wheat crop.
"However, we reiterate that bad weather conditions during
dormancy stage may not necessarily translate to reduced yields and increased
abandonment, according to historical instances."
Even so, she forecast that without any alleviation in
dryness before winter wheat breaks dormancy - a possibility that was "likely to
reverse damages and exert pressure on prices" - wheat was "likely to remain the
most bullish among grains and may test $8.00-a-bushel levels this week or next".
'Trend has changed?'
Chicago's spot March contract was still a little way off
that in early deals on Wednesday, standing at $7.88 a bushel at 09:30 UK time
(03:30 Chicago time).
Still, that was a 0.7% rise on the day, with investors being
encouraged too by technical factors, with the contract closing the last session
above its 20-day moving average for the first time since November,
"Three days of solidly closing higher suggest the trend has
changed. Buy breaks until the market proves you wrong," Market 1's Mike
Chicago corn for March set course for an eighth successive
positive close, attempting to extend a run which took it back though its 20-day
line last week, and in the last session to a finish back above the 50-day
moving average for the first time since early December.
The March lot added 0.4% to $7.33 ¾ a bushel.
'Little bit of
emerged relatively bearishly from Friday's USDA data, also have the most equivocal
technical signals, with Chicago's March lot closing back above it 20-day moving
average on Monday, but failing in the last session to secure a foothold above
"The weakness that continued to develop over the course of the
last session gives plenty of reason for speculative length to continue to take
profits on long positions," Brian Henry at Benson Quinn Commodities said,
underlining a "murky picture going forward" for soybeans.
"The technical structure of the market is offering a little
bit of everything. Daily momentum studies continue to point to higher prices,
but the failure at the 50-day moving average is a sign that the market is
"I expect traders holding profitable long positions to be
quick to take profits on signs of further weakness."
'Basis levels weakened
And there are some fundamental concerns too, with the US not
announcing fresh sales of the oilseed to China on Tuesday, as some investors
had hoped following rumours of buyers in town.
"I don't doubt that the Chinese have been shopping the US
and South America, but I am seeing more signs that they don't have to chase
offers," Mr Henry said.
"Rail basis levels in the northern US Plains weakened
considerably, which is a sign that the window to trade February shipment slots
Still, helped by grains and South America weather concerns,
Chicago's March soybean lot added 0.6% to $14.20 ¾ a bushel.
'Fundamental picture still
Some soft commodities managed a better performance in early
deals on Wednesday too, despite a broader risk-off attitude afoot, which lifted
the safe haven of the dollar a touch
and sent shares lower. London stocks dropped 0.7% in early deals.
New York raw sugar
for March rose 0.4% to 18.70 cents a pound, reversing some of the declines of
the last session.
"Raw sugar futures may witness some short-covering today,"
Phillip Futures Ms Liu said.
"The overall fundamental picture is still bearish, at least
until any favourable ethanol policy changes take place in Brazil.
"But the market has gone temporarily too far into bearish
territory with large amount of shorts."
New York cotton for
March extended its recent recovery, adding 0.3% to 76.46 cents a pound, helped
by Friday's USDA downgrade to its estimate for US stocks at the close of
2012-13, and by corn and soybeans, with which the fibre will compete for
acreage in the US sowing season.