PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 09:34 GMT, Thursday, 9th Jan 2014, by
Morning markets: wheat bounces from lows but sugar struggles

One concern for bulls when assets tumble to fresh lows is that the fall, rather than inspiring bargain hunting, opens the way for further declines.

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.

"However, corn 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."

'Bearish tone'

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 time).

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 production surplus.

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 positioning.

"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.

Data later

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 estimate.

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 2014.

Export sales

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.

Soymeal's are 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. 

Prices fall

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 average.

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 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 a bushel for March delivery,  

PM markets: sugar and wheat prices tumble to multi-year lows
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