Rises in grain and
oilseed prices over the last two sessions went against the common idea that
they are due a further fall in 2014, as world stocks rebuild further.
On Tuesday, the
negative thinking reasserted itself, underpinned by further firmness in the dollar, linked to the prospect of the
tapering of Federal Reserve bond purchases in support of ultra-easy monetary
A stronger dollar
undermines prices of dollar-denominated commodities by making them less
affordable to buyers in other currencies.
'May represent a watershed'
But there was also
widespread comment that the previous sessions' resilience had been linked to
the prospect of a plethora of US Department of Agriculture data on Friday, when
it releases not just the monthly Wasde report, but data on winter wheat
plantings and crop stocks as of December 1.
"The longer term
outlook for soybeans appears bearish. The question is when the market will roll
over and begin declining," said Anne Frick at Jefferies Bache.
"We think the
January 10 crop report day may represent a possible watershed."
is the index fund rebalancing process to think of.
In this exercise,
early in the calendar year, funds adjust weightings to return individual
commodities to the levels stipulated by the index they follow – meaning buying
2013's poorest performers, such as corn
and wheat, and selling the winners.
Hedge fund positioning
Not that hedge
funds appear to have been making too much of a bet on this raising agricultural
commodity prices, cutting their net long position in futures and options for a
record 10th successive week as of the week to last Tuesday, ending
2013 on a decidedly bearish note.
returning their net short (meaning short positions which benefit which prices
fall exceed long holdings which gain when values rise) in Chicago wheat to
within 300 contracts of its all-time high (reached earlier in December) and boosting
their net short in corn too.
In soybeans, they slashed their net long
by 29,000 contracts.
In fact, among major
agricultural commodities, it was only cotton
and live cattle which enjoyed more
Nor were they keen
to push the boat out on Tuesday, with only wheat among Chicago's big three
managing to hold its ground, standing unchanged at $6.05 ¾ a bushel for March
delivery as of 09:30 UK time (03:30 Chicago time).
And that required
the support of the US cold snap which is seen as causing some winterkill,
although how much is open to question.
Often, damage does
not show until late in the growing cycle.
Group estimates that the damage is just 1.3%, in terms of overall US winter
wheat yield potential.
said: "Cold temperatures in the US should not have a deep impact on winter
wheat crop development, as main production areas register temperatures between
-20 and -25 degrees and are protected with a snow cover."
At Benson Quinn
Commodities, Brian Henry said: "Given the temperatures of the last couple of
days and the fact that snow cover in some areas - portions of Nebraska, Kansas
and perhaps a couple areas of South Dakota - is lacking, I don't doubt that
some damage to the crop has occurred.
there are also areas of soft red winter wheat production that were susceptible
to cold temperatures.
if it occurred, will not be known anytime soon and believing the favourable
state of the balance of the crop has potential to offset minor damage in
localised areas is a sound way to approach any new crop issue at this point."
US export pace
Besides, there is
some talk that the Argentine wheat crop is not as dismal as some have said.
CHS Hedging noting
that with the crop 75% harvested "wheat exports to Brazil could start resuming",
a negative for prices in the US, which has been gaining unusual amounts of
The slowing US
export pace has been giving comfort to wheat bears, with Mondays data, showing cargo
inspections of 13.6m bushels last week, below the 15.4m bushels needed to meet
'Expecting more rejections'
Corn futures for
March were 0.1% lower at $4.27 ¼ a bushel, with ideas that Friday's report will
raise USDA estimates both for US production of the grain and year-end stocks
The harvest is seen
by analysts being upgraded by some 77m bushels to 14.066bn bushels, on a yield
raised by 0.8 bushels per acre to 161.2 bushels per acre, with end-stocks
pegged at 1.861bn bushels.
That would be an
upgrade of 69m bushels.
remain concerns over Chinese rejection of US corn cargoes containing a
genetically modified variety unapproved by Beijing officials.
"The trade is
expecting more rejections and possibly cancellations until the issue is
resolved," CHS Hedging said.
over Argentine dryness appear to have eased off for now, despite talk of some
further dryness and high temperatures.
"A heat wave in
Argentina could cause water deficit for crops before the arrival of expected
rains at the end of the week," Agritel said.
Anne Frick at
Jefferies Bache said: "Hot weather has returned to Argentina, reigniting some
concern about yields.
still appear to call for a record large soybean crop there."
'Potentially record crop'
At Chicago broker
RJ O'Brien, Richard Feltes said: "Current South American crop conditions, if
sustained, suggest that the USDA may be underestimating 2014 South American
soybean production by 2-3m tonnes.
"It will be difficult
for the soybean market to mount a sustained rally with a potentially record
2014 soy crop looming in the backdrop."
soybeans for March were 0.6% lower at $12.68 ¾ a bushel in Chicago.
'Finally finding a bid'
Soymeal dropped 0.4% to $412.30 a short ton despite some easing concerns over domestic
competition, as a protein feed ingredient, from distillers' grains (DDGs),
after Chinese rejection of these too.
"DDG prices are finally
finding a bid after declining $80-100 per ton over the past couple of weeks,"
CHS Hedging said, noting that "both the domestic and export DDG markets are
finding demand at these levels".
Mr Feltes said that cash market sources were
reporting the DDG and meal markets "firming once again following a $90-a-ton
freefall from post-Christmas levels".
Chinese cotton concerns
commodities, New York cotton got off to a firm start, adding 1.1% to 84.57
cents a pound for March, amid a hedge fund reassessment which saw them rebuild
their net long position by more than 35,000 contracts to 43,288 lots last
Concerns have eased
over a slowdown in China's state stockpiling, which has been a primary support
for world prices, while Chinese production, the world's biggest, is expected to
be challenged this year by falling sowings.
"As it stands,
China is putting a lot of emphasis on promoting crops for food security and
many of the cotton farmers in inland China, particularly Henan and Hunan
provinces, have not been doing well," International Cotton Advisory Committee statistician
Rebecca Pandolph told Agrimoney.com.
"So cotton is
likely to be grown mostly in the Xinjiang area with inland farmers switching to
other crops or leaving farming all together as finding labour has been an
The ICAC has
forecast Chinese sowings falling below 4m hectares for the first time since
Sugar gains – for now
Raw sugar for March added 0.1% to 16.10 cents a pound, despite some scepticism
over price potential.
Indian production prospects and the likelihood of a strong Indian export
programme is likely to cap advances in sugar markets," Luke Mathews at Commonwealth
Bank of Australia said.