Agricultural commodities, star financial market performers
for more than a month, returned to the bottom of the class on Tuesday, as the prospect
of wetter Midwest weather prompted a further round of profit-taking.
The influence from external markets turned more positive,
after an improvement in Chinese manufacturing data.
A purchasing managers' index compiled by HSBC showed
activity improving to a nine-month high of 49.5 this month, up from 48.2 in
That helped shares
put the brakes on their round of declines, and post small gains in many
The safe haven of the dollar
stood little changed, while Brent crude
'Pushed and pulled'
But agricultural commodities declined to join in the
upswing, bar cotton, which as an
industrial commodity, tends to move more closely in line with the
macro-economic mood than food crops.
New York's December contract added 0.2% to 72.36 cents a pound
as of 09:00 UK time (03:00 Chicago time, 04:00 New York time).
"Cotton prices continue to be pushed and pulled by unfolding
global economic developments," Luke Mathews at Commonwealth Bank of Australia
Indeed, on Tuesday, this allowed the fibre to overcome some upbeat
crop condition data out overnight, when the US Department of Agriculture lifted
by two points to 47% the proportion of the domestic crop rated in "good" or "excellent"
condition, up from 29%
"Cotton crop conditions improved last week in response to
recent rainfall," Mr Mathews said.
Raw sugar dropped
0.8% to23.71 cents a pound sapped by a move by Thailand's government to switch
100,000 tonnes from domestic programmes for exports.
This move could take shipments to a record high of 7.9m
tonnes this year.
Besides, funds were in no mood to hold on to hefty net long
positions in the likes of sugar, as
well as soybeans and wheat, after the last session reminded
that the only way for food prices was not upwards.
The latest declines came despite overnight USDA data showing
further deterioration in the condition of US row crops, with the proportion of
corn seen good or excellent dropping five points to 26%, and the proportion of
soybeans so rated falling three points to 31%.
The decline included some worrying headlines. In soybeans,
for instance, more (35%) are rated in "poor" or "very poor" condition than good
For corn, where
this was already true, none of the crop in Illinois, the second-biggest
producing state, is rated in excellent health, with only 2% of the crop in
top-ranked Iowa making the grade.
However, that had already been factored in by the jump in
prices of both corn and soybeans to record highs last week.
What is ahead is the prospect of improved weather – although
how much improved depends on which weather model you believe.
Clash of the models
As ever, it is the GFS model which is wetter.
"The European model in the six-to-10 day outlook has a much smaller
trough over the eastern Corn Belt and east coast and a much bigger heat dome
that is still centred over Kansas and Oklahoma by July 31-August 1," WxRisk.com
"The European model has the western Corn Belt much drier and
hotter than the GFS model does."
Whatever, Jon Michalscheck at Benson Quinn Commodities said:
"Even though the GFS model has not shown the accuracy the European weather model
has this summer, the market used it as an excuse to force some weak length to
Mike Mawdsley at Market 1 said: "True, chances for rain are
started to increase. But at some point the market was going to go down regardless
of the news."
In fact, the official Climate Prediction Center outlook sees
"most of the Midwest in the near-normal rainfall area" in the six-to-10 day horizon,
although temperatures will be above average, and much above average in some
areas, WxRisk.com said.
The upshot was more selling, particularly in soybeans, in which
speculators have a near-record net long position (for which read unfulfilled contract
sales) and which stand to gain most from better weather.
"While there has been some [soybean] crop damage, part of
the crop is still salvageable with a significant shift in weather," Phillip
"The impending relief is expected to more helpful to soybean
than corn, as the former enters its pod-setting and pod-filling stages that are
critical to determining yield while much damage has already been done to later
during its critical pollination stage."
Chicago's best-traded November contract lost 2.7% to $15.78 ¾
a bushel, while the spot August lot dropped 2.5% to $16.56 ½ a bushel.
Soymeal, the top agricultural commodities of 2012, stayed particularly weak, down 2.9% at $508.00 a short ton for August delivery.
Wheat was hard
pressed again too, as funds began to unwind a large net long position which is
at odds with their typical positioning in the grain, and a move marrying with ideas
that the grain will underperform corn, which is in far shorter supply.
"We think this [wheat-corn] spread will narrow further as
corn prices itself out of the global feed ration," CBA's Mr Mathews said.
At Benson Quinn, Brian Henry noted the impact already of
high wheat prices on demand.
"The results of the Jordan wheat tender indicates that US
spot values do not currently work into this location," he said.
"It appears US spot values would have to come down 50+ cents
[a bushel] to be competitive with the $325-a-tonne offer from the Black Sea."
Wheat for September dropped 2.0% to $8.94 ¼ a bushel.
Corn fared best, supported by the fact that even rains now
will not do that much to help the Midwest crop, and by the fact that the fund
net long position remains relatively small, meaning less pressure for liquidation.
The December lot dropped 1.2% to $7.76 ½ a bushel, with the September
contract shedding 1.7% to $8.00 ¼ a bushel.