How long will the fund buying attributed with boosting
agricultural commodities last?
The extent of the buying has, in some contracts, been huge.
CHS Hedging said that "funds have bought an estimated
350,000 Chicago corn contracts since
the January crop report," that is, the US Department of Agriculture's Wasde
crop report published on January 10.
And there is scope for more, another US broker said, quoting
Admis research estimates that funds are "net long 108,000 contracts" but adding
that "this is far less than what they are capable of building".
In August 2012, the managed money net long in corn futures
and options topped 340,000 contracts - although this was amid the worst US
drought in a generation.
'Key to price action'
But will the money keep coming in?
"The key to price action short term will be determined by
the managed money and their positioning over the next 20 days," the broker
Certainly, one investment alternative, share markets, is no longer looking quite so parlous, especially
now the worst of the Ukraine crisis appears to be over (for the moment) with stocks
gaining 1.6% in Tokyo overnight and making a firm start in Europe.
And Benson Quinn Commodities wondered whether the idea of fresh
cash flowing into agricultural commodity markets at month beginnings (and being
withdrawn at month ends to pay off clients etc) might have been in play this
week – and about to end.
In the last session, "money faded out of market by end of
day as funds wound down new month buying on day three of the cycle", the broker
said, with moves in ag markets often viewed as lasting three days.
Another observation is that open interest, the number of
live futures contracts, "has been declining" for soybean futures, and for Chicago wheat too, despite fund inflows.
In wheat, "the rapidly declining open interest in Chicago is
now at its lowest level since 2010", Benson Quinn Commodities, and likely down
largely to funds covering short positions, rather than taking out new long ones.
Whatever, the crop in open interest "is seen bearish and
could set trade up for negative reaction to friendly export sales today", when
the US Department of Agriculture unveils weekly US export sales data.
At least for corn, CHS Hedging noted rising levels of open
US export sales data will be scoured for evidence that
higher prices, even at last week's levels before the further leg up on Ukraine
turmoil, shut off trade.
Traders are expecting the figure for corn to come in at 600,000-850,000
tonnes, old crop and new combined, with wheat sales seen at 250,000-450,000 tonnes.
But more interest may surround the soybean figure, with a continued
focus on whether Chinese buyers are indeed cancelling orders of US soybeans, in
favour of cheaper Brazilian supplies - as investors have long foreseen and has been
much rumoured, but of which there has been little evidence.
A weekly export sales figure of 300,000-450,000 tonnes is
forecast, but that does include new crop.
'Balance sheet will
get too tight'
In fact, the US Department of Agriculture did on Wednesday
reveal 245,000 tonnes in Chinese cancellations, but a lot more are needed to create
a bit of room in the tight US soybean balance sheet.
"Markets have been expecting such a move by China as soon as
South American supplies are available," Vanessa Tan at Phillip Futures said.
CHS Hedging said: "The trade has been anticipating
cancellations and will be watching to see if there are more to follow.
"Without additional cancellations the balance sheet will get
The next USDA Wasde crop report, on Monday, is expected to
show the figure for US soybean stocks downgraded by 9m bushels to 141m bushels,
a figure which would be among the tightest ever, compared with demand.
Further somewhat tepid news for agriculture markets came
with a report that China's farm minister, Han Changfu, had undermined
expectations of soaring grain imports, saying that the country will be able to
meet rising demand mainly through improvements in domestic production.
While investors are likely to take such pronouncements with
a pinch or two of salt, wheat for May fell 0.9% to $6.36 ¾ a bushel in Chicago
as of 09:50 UK time (03:50 Chicago time), undermined by the waning concerns
over the turmoil in Ukraine, a major grains exporter.
Similarly, corn for May fell 0.5% to $4.79 ½ a bushel.
Still, they remain well above levels a week ago, before Russia
deployed troops to Crimea, in southern Ukraine.
Soybeans, for now, were doing better, with Chicago's May
contract up 0.4% at $14.25 ½ a bushel.
Indeed, the oilseeds complex as a whole was firm, with soymeal for May adding 0.6% to $452.40
a short ton, and soyoil for May
edging 0.01 cents higher to 43.41 cents a pound.
One big support for the complex has come from palm oil, which set a 17-month high in
the last session, and looks set for a 17-month closing high in this one,
standing up 0.8% at 2,857 ringgit a tonne in Kuala Lumpur.
Palm oil values have been boosted by dryness in South East
Asia, threatening production growth, at a time when world economic recovery,
and higher use of the vegetable oil for making biodiesel in Indonesia and
Malaysia, is spurring demand.
'Outperformance in rapeseed'
A much-watched conference this week saw Dorab Mistry, an
influential analyst, forecast prices potentially hitting 3,500 ringgit a tonne
if an El Nino weather pattern sets in, although adding that values are likely
to trade at 2,600-2,900 ringgit a tonne if normal weather returns soon.
Fellow analyst James Fry forecast a 20% drop on Malaysia's
palm oil stocks in the first half of this year, thanks to production setbacks,
although he was more cautious on the upward potential for prices, given
competition with other vegetable oils.
The rise in palm oil prices is positive too for values of rapeseed, which is an oil-heavy
oilseed, as opposed to soybeans which produces more of the meal used in feeding
Luke Matthews at Commonwealth Bank of Australia noted "outperformance
in canola/rapeseed markets,
partially tied to worries that dry conditions in South East Asia will result in
reduced palm oil production from the region".
Paris rapeseed for May gained 0.3% to E408.00 a tonne, the
highest for a spot contract in eight months.
Mr Mathews was more downbeat on prices of raw sugar which, like those of coffee,
have been sent soaring by dryness in Brazil, the top producer of both.
"We are still wary that speculative short-covering has had a
significant role to play in pushing sugar values higher," he said.
"History shows that short-covering rallies do come to end,
But there was no sign of an end for now, with May sugar up
0.7% at 18.36 cents a pound in New York, the highest for a spot contract since
for May did less well, easing 0.5% to 201.35 cents a pound, amid ideas that the
ending of Brazil's Carnival holiday (actually yesterday afternoon) may foster a
pick-up in producer selling at the highest prices in two years.