PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 09:36 GMT, Wednesday, 5th Mar 2014, by Agrimoney.com
Morning markets: ideas of upbeat fund view stabilise ags

Grain futures traded on a weaker note, as might be expected given that the Ukraine crisis continues to go off the boil.

US Secretary of State John Kerry and Russian Foreign Minister Sergei Lavrov are to hold talks to try to ease tensions over the turmoil surrounding Russia's deployment of troops to Crimea, in southern Ukraine.

But that doesn't mean that the retreat in corn and wheat prices was severe.

New paradigm?

Indeed, there is some thinking that, with agricultural commodities now back firmly in funds' bullish books, there is something of a change in pricing thinking going on, bringing in factors such as fears for delays to US spring plantings too, after the cold winter.

There are long-range forecasts, from the likes of Commodity Weather Group, for a cold spring and a warmer and drier summer than normal too.

"The corn rally is based on a number of factors one of which has been the fears of late planting," one US broker said, if sceptical over such thinking.

"While we won't rule anything out, one week of 70 degree Fahrenheit weather can change this very quickly. 

"And as we have learned in the last five years when that planting window opens we can get a lot done in a short amount of time with the new technology."

'Heaviest since harvest'

Market 1's Mike Mawdsley said that "for now buyers are willing to plough into commodities with both fists," recommending investors seek guidance from, improving, technical signals and "keep the charts before you and target the next upside objectives".

And at RJ O'Brien, Richard Feltes highlighted that agricultural commodities are attracting fresh money despite some big bearish factors, such as the upbeat official expectations for US crops this year, as unveiled last month, and stories of large Chinese stocks of corn and soybeans.

(Chinese is the biggest importer of soybeans, and its far smaller corn purchases are particularly market sensitive, given the country's status as the second-ranked consumer giving huge potential for these volumes.)

He also noted "stepped-up farmer selling", a factor flagged too by CHS Hedging, which said there had been "good producer selling for both old and new crop.

"Some areas reported that farmer selling on yesterday's rally was the heaviest they have seen since harvest," CHS said.

'Feeling good'

Still, Mr O'Brien said that it looks like "managed fund, index longs are feeling good about positive year-to-date ag sector longs", as evidenced by speculators' most bullish positioning in the ag futures and options since September 2012, when prices were being supported by the US drought.

"I suspect the erratic US weather pattern in recent years, optimism over modest economic recovery, richly priced equity markets are collectively attracting institutional buying," he said.

He also noted the boost to prices from an "awareness that 2014-15 global grain and soybean stocks-to-use ratios will not advance appreciably even with normal yields".

Buoyant prices

It is also signal, in terms of the appetite for agricultural commodities, that oat futures remain near record high, albeit for Chicago's March contract falling back 0.7% to $5.38 a bushel on Wednesday, as of 09:30 UK time (03:30 Chicago time).

And lean hog futures are at record tops too, despite the weaker temptation to raise herds, and increased impetus for herd reductions, implied by higher grain prices.

However, pork prices have hit an all-time high. "High beef prices appear to have lit a fire under pork prices," Paragon Economics and Steiner Consulting said.

This before factoring in the revival in coffee and sugar prices too on Brazil dryness concerns, besides the longer-standing cocoa rally on expectations of a second successive world production deficit in 2013-14.

'Severe drought or worse'

Whatever, wheat futures for May, while losing ground, were down only 0.4% at $6.41 a bushel, recovering most ground lost in early deals, and also gaining technical help from the lot's return over its 100-day moving average.

Furthermore, there remain concerns over the condition of the US winter wheat crop, after further declines in its health rating revealed on Monday night, and potential for further declines.

"Much of the southern and western winter wheat growing regions are in severe drought or worse," said Mark Welch at Texas A&M University.

Indeed, Kansas City-traded hard red winter wheat, the main type in these dry areas, was down only 0.1% at $7.08 a bushel for the May contract, which in the last session came within an ace of closing above its 200-day moving average for the first time in more than a year.

Chicago corn futures for May eased 0.2% to $4.83 a bushel, but that was enough to leave them over their 200-day moving average, regained in the last session for the first time in 14 months.

'$15-a-bushel soybeans'

Another factor on the market's horizon is the prospect on Monday of the latest monthly US Department of Agriculture Wasde crop report which, while not one of the big ones, does present the potential for showing strains in the US soybean balance sheet.

"The soybean story is particularly compelling," RJ O'Brien's Richard Feltes said, noting the "likelihood" that 95% of US soybean export sales for 2013-14 (ending in August) "will be executed by the end of March".

This will leave "merchandisers and processors aggressively competing for the remaining 15-20% of unsold farmer soy stocks during the five remaining months of 2013-14 marketing year".

He added: "I cannot rule out $15-a-bushel soybeans [May futures] by mid-April, which suggests another $0.20-30 rally in corn and wheat."

For now, May soybeans were up 0.2% at $14.25 a bushel, after in the last session recording their best close in seven months.

'Buy oil, sell meal'

They were also helped by some headway in soyoil, which appears to be taking over from soymeal for now as bulls' soy product of choice.

Market 1's Mike Mawdsley said: "Soyoil continues to benefit from spreading - buy oil, sell soymeal."

There is some fundamental cause behind this, with talk of a potential reinstatement by the US of a tax credit for biodiesel, made in the country mainly from soyoil.

Soyoil for May was 0.1% higher at 43.74 cents a pound, while May soymeal eased 0.2% to $448.90 a short ton.

Palm prospects

Furthermore, rival vegetable palm oil has been in demand, hitting 17-month high of 2,868 ringgit a tonne in Kuala Lumpur on Wednesday, before easing back to of 2,835 ringgit a tonne, a gain of 1.2%.

Dry weather is raising production concerns, with respected analyst Dorab Mistry foreseeing higher prices yet if a full-blown El Nino pattern develops.

"If rains come as normal and the high-cycle [for production] kicks in from July onwards, prices can trade in a range between 2,900 and 2,600 ringgit from July until October," Mr Mistry said.

"In the event that an El Nino develops, I believe crude palm oil futures will cling to 3,000 ringgit beyond June.

"Production is likely to be affected from late 2014 onwards and we may be staring at 3,500 ringgit."

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