One concern for bulls when assets tumble to fresh lows is
that the fall, rather than inspiring bargain hunting, opens the way for further
Without demand from, say, end users - or from index funds
supposed to be undertaking their rebalancing process - declining futures can,
with technical appeal shot, appear as appealing as falling knives.
And with the index fund rejig - which involves buying last
year's losers and selling the winners to get portfolio weights back to mandated
levels – apparently impotent against the tide of selling, it hardly augered well
for early deals.
"Index fund balancing was reported to begin on Wednesday and
continue into next week," Mike Mawdsley at Iowa-based broker Market 1 said.
made new contract lows on Wednesday," with Chicago wheat and New York raw sugar
futures setting multi-year lows.
"Someone didn't get the memo."
Another broker explained the last session's late collapse,
despite the supposed index fund buying, as below.
"Heading into the day the market was focused on the fact
that the index funds were about to make large position changes," with purchases
of Chicago corn alone expected at 100,000 over five trading sessions.
"Naturally the market accounts for this and usually stands
ready to absorb the orders.
"When too many traders buy ahead of the position change,
nicknamed oversubscribing, it can result in a bearish response because they in
turn have no-one to sell their positions to once the fund orders dry up."
Whatever, investors were not too willing to give raw sugar
the benefit of the doubt on Thursday, with the March contract standing 0.3%
lower at 15.69 cents a pound in New York as of 09:30 UK time (03:30 Chicago
Earlier the contract reached 15.66 cents a pound, the lowest
price for a spot lot since July 2010, under pressure from a series of years of
Prices have felt pressure from "the bearish tone in the rest
of the commodity complex and a comfortable global sugar supply situation", Luke
Mathews at Commonwealth Bank of Australia said.
'Reluctant to sell'
Grains and oilseeds did a little better, if only because of
the approach of a slew of data, which often encourages some caution in investor
"Many traders may be reluctant to sell at new contract lows
ahead of the big report in case of a supply surprise," one US broker said.
The broker was referring to the reports, plural, due on
Friday from the US Department of Agriculture, which releases data on winter
wheat sowings and US grain stocks, as of December 1, besides the usual monthly
Wasde crop report.
Friday also brings palm oil data, with the Malaysian Palm
Oil Board's monthly report.
But today brings its own statistics too, in the form of
Conab estimates for the Brazilian 2013-14 field crop harvests, as well as the
results of the first survey on coffee
for this year.
These may be particularly closely watched, in part thanks to
the large expectations that investors have for Brazil's soybean crop.
Investors expect the USDA, in its Wasde report, to raise the
forecast for Brazil's soybean output by 1.1m tonnes to 89.1m tonnes, more than
offsetting a small decline, of some 42,000 tonnes, to the Argentine harvest
Coffee storm brewing?
And Conab's coffee comments come at a sensitive time for the
arabica market, after the highest December rains in 90 years in Brazil's coffee
belt raised alarms that the record harvest of 60m bags or more which many
investors had expected this year may no longer be on the cards.
Somar Meteorologia this week cut its crop forecast by some
3m bags to 51m bags, in line with a forecast from Volcafe.
(That said, caution must be taken in comparing coffee
production estimates, with Volcafe, for instance, pegging Brazil's 2013 output
at 57.2m bags, compared with Conab's 49.2m bags.)
Arabica coffee for March was 0.2% down in New York ahead of
the data but, at 120.65 cents a pound, still up a breathtaking 9% so far in
The day will also bring weekly US Department of Agriculture
data on US export sales.
Not, to judge by recent reaction, that these look like
providing much support for prices even if they exceed forecasts of
700,000-900,000 tonnes for soybeans, 200,000-700,000 tonnes for corn (an
unusually wide spread of guesses, that) and 350,000-550,000 tonnes for wheat.
pegged at 100,000-150,000 tonnes, and soyoil's
at 10,000-25,000 tonnes.
Crop prices, particularly soybean ones, have managed to fall
despite decent export news, declining in the previous two sessions despite news
of export sales to China.
Investors remain convinced that China will switch US orders
to South America once harvest supplies turn up there in earnest.
And from the early harvest, "yield reports from northern
Brazil are coming in better than expected", CHS Hedging said.
Still, Chicago soybeans did manage a 0.5% bounce to $12.76 a
bushel for March delivery, taking the contract back above its 200-day moving
It was helped by a resolute performance by soybeans on China's
Dalian exchange overnight, where they added 0.2% to 4,565 ringgit a tonne for
May despite the weak showing in Chicago in the last session.
Furthermore, some recovery in wheat helped too, up 0.2% at
$5.89 ¾ a bushel for March, amid hopes that US wheat prices have reached a
level that is competitive for exports.
Certainly, it looks like India may have to settle for bids
below $283 a tonne for its wheat if it wishes to get shot of its latest
2m-tonne export tranche, Benson Quinn Commodities said.
Corn for March remained under the cosh, down 0.3% at $4.15 ¾
a bushel for March delivery,