PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 09:14 GMT, Wednesday, 2nd Jan 2013, by Agrimoney.com
Morning markets: US budget deal spurs market gains

Can Chicago crops, which managed such a poor close to 2012, start the new year on a better footing?

Hopes of a rebound in corn and wheat futures from among their lowest levels in six months, with soybeans within 4% of a similar feat, received a fillip from agreement by US politicians to budget measures which will avert the country falling off its so-called fiscal cliff.

The House of Representatives late on Tuesday passed, by 257 votes to 167, legislation lifting taxes on the wealthiest Americans, reflecting a compromise reached earlier in the Senate.

Shares rise

The idea that the US has avoided triggering a package of measures deemed likely to push the country back into recession boosted investor sentiment.

Shares rose on Asian markets that were open, adding 2.9% in Hong Kong, where stocks hit their highest level since June 2011, while gaining 1.2% in Sydney.

In Europe, London stocks rose 1.4% on their first trading session of 2013, while Frankfurt and Paris stocks soared 1.8%.

As an extra sign of improved risk appetite, the safe haven of the dollar eased 0.5%, further improving prospects for dollar-denominated assets such as many commodities by making them more affordable to buyers in other currencies.

Copper shines

Indeed, London copper soared more than 2%, on course for its biggest daily rise since mid-November.

However, the full extent on agricultural commodities was somewhat masked by the fact that most major crop markets remained closed for holidays, including those in Tokyo, the most-watched rubber market, and China.

Chicago trading will reopen later, at 15:30 UK time (09:30 Chicago time).

Palm recovery

One main market that was open was Kuala Lumpur, where palm oil for March added 2.5% to 2,500 ringgit a tonne as of 09:10 UK time (03:10 Chicago time).

The market is gaining extra support from hopes that a zero rate of export duty on Malaysian palm oil this month will spur shipments and erodes inventories which have reached a record high in the second-ranked producing country, depressing prices to three-year low last month.

Indeed, palm oil prices lost 25% in 2012, recording their worst annual performance since the world financial crisis year of 2008.

Values are also being underpinned by heavy seasonal rains in major producing states such as Johor and Pahang, with precipitation lowering oil content besides hampering logistics.

'Stricter import rule'

But ideas of strong Malaysian exports this month are being undermined somewhat by concerns over quality controls being imposed by China, a major importer of the vegetable oil.

"China's Inspection and Quarantine Bureau said it will not accept imports of edible oils containing too much peroxide or stearic acid," Ker Chung Yang at Phillip Futures, in Singapore, noted.

"Traders are watching the impact of Malaysia's zero export tax for crude palm oil in January and a stricter import rule for edible oil to be enforced by China."

Already, the Chinese measures have been blamed for a drop in Malaysian exports last month of 5.7%, according to Intertek, and 7.9%, according to rival cargo surveyor Societe Generale de Surveillance.

Syrian tender

Factors in the mix later for Chicago include a tender by Syria for 100,000 tonnes of soft milling wheat.

Syria often buys from the Black Sea, although the dwindling exportable supplies in Russia and Ukraine mean another origin might not be ruled out this time.

On the price negative side for the grain, recent rain and snow in US winter wheat areas has improved prospects for drought-pressed seedlings.

Weather is viewed generally benign for Argentina and Brazil, supporting hopes for corn and soybean harvests which are now beginning in some areas.

Brazilian harvest

Indeed, Michael Cordonnier, at Soybean and Corn Advisor, reported that in the major Brazilian producing state of Mato Grosso, "the soybean yields are reported to be in the range of 2,500-3,000 kilogrammes per hectare, or 36-43.5 bushels per acre, which is similar to the 2011-12 growing season.

"The early-maturing soybean yields were impacted somewhat by drier-than-normal weather that occurred in October.

"The yields are expected to improve to 3,500 kilogrammes per hectare, 50 bushels per acre, by January 15 when the medium-maturity soybeans will start to be harvested."

'Surprise deliveries'

Also concerning the soy complex is the continuing expiry process of Chicago's January contracts, and the level of deliveries against them which are seen as a measure of the attractions of selling through futures rather than in the cash market.

First notice day on Monday saw 0 deliveries of soybeans, 9 contracts in soymeal and 5,268 contracts in soyoil.

"Deliveries in soymeal were a surprise, and soyoil deliveries were about double those expected," Kim Rugel at Benson Quinn Commodities said.

As a recap, Monday's US export data, as measured by cargo inspections, came in at 7.9m bushels for corn, from 13.9m bushels the week before, well below the average of 25.5m bushels they need to hit to make the US Department of Agriculture forecast of 1.15bn bushels for 2012-13.

For soybeans, export inspections were 35.5m bushels, towards the bottom of the range of market expectations, and for wheat were considered soft at 7.76m bushels.

Wheat vs wheat

And other forces to look out for include beginning of month, and year, buying. New months are typically seen as bringing extra cash into the market.

However, investors will be on the look out for signs of impact too from fund rebalancing, the process by which funds rejig their portfolio weights back to those of the index they follow, meaning sales of 2012's top performers, and purchases of laggards.

Chicago wheat, for instance, is seen being sold down by index funds, after a gain of 19% in 2012, although Kansas wheat may do better, being included in some indices for the first time.

"Expectations are the index fund rebalancing will favour Kansas wheat over Minneapolis and Chicago in 2013," Benson Quinn said.

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