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Morning markets: wheat extends gains, but other ags struggle

Agricultural commodities took a somewhat mixed stance on Wednesday, in line with the broader markets mood.

If early deals on Tuesday came against a backdrop of fretting over Italy's election result, this time investors found some solac, in comments by Ben Bernanke, the head of the Federal Reserve, reassuring that ultra-easy US monetary policy would only be withdrawn when the economy was ready.

The idea of sustained asset purchases, a negative for currency strength, put the brakes on the rally in the dollar, which eased 0.2%, in turn improving the affordability of dollar-denominated exports, such as many commodities, to buyers in other currencies.

An extra boost to agricultural commodities may be coming from the end of the month, a period associated with position tidy-ups by funds, which typically means selling pressure but given the increasingly negative stance taken by investors, could this time mean something more positive.

Demand hopes

For US wheat, there is talk of robust demand too, especially after Japan's order of 50,000 tonnes of soft red winter wheat for feed.

The deal "shows just how cheap US wheat has become, and there is talk in the US that local wheat feeding has stepped up further", Luke Mathews at Commonwealth Bank of Australia said.

At Phillip Futures, Joyce Liu said that "US wheat exports are now at globally attractive levels compared to other major exporting countries, such as Australia and Russia".

And while snow storms across the US Plains have "brought some relief to the drought-afflicted wheat growing areas, whether winter wheat yields can improve will depend on the moisture outlook from now up to end of April".

'Monitor those spreads'

Technically, Brian Henry at Benson Quinn Commodities pointed out that "the wheat markets remain oversold, which could trigger additional short covering", with speculators holding a net short of nearly 50,000 lots on Chicago wheat as of February 19, approaching record highs.

"I would question establishing new shorts near the current levels," he said, if noting that "previous opportunities to post a correction have failed miserably".

Still, this time, Chicago wheat has the narrowing of its premium with corn, indeed its turn to a discount at some points in the last session, to think about. Usually wheat has a healthy premium.

"I'm not sure if wheat will keep losing to corn from here, thus monitor those spreads," Mike Mawdsley at Market 1 said.

Chicago wheat for March stood at $7.09 a bushel, up 0.5%, at 09:45 UK time (03:45 Chicago time).with the better-traded May lot up 0.4% at $7.14 a bushel.

'Prices are now competitive'

That was enough indeed to open up a little bit of a gap over corn, which missed out on the positive trend in agricultural commodities, standing 0.1% lower at $7.04 a bushel for March delivery, and down 0.2% at $6.93 a bushel for May.

But this was after a strongly positive performance in the last session, helped by ideas of better demand for this grain too.

"Investors are also hoping that US corn will regain attention in overseas trading demand as prices are now competitive compared to other countries," Phillip Futures' Ms Liu said.

Signally, even in decline, the March lot boosted its unusual premium over the May contract, a factor seen as a positive, in signalling that the market is incentivising farmers to release stocks rather than hoard.

Doji question

Soybeans have also opened a healthy bull spread, which remained intact even as the pressure from ideas of a pick-up in the Brazilian harvest, and the release by China of crop from state reserves, eased off.

But as for where flat prices are heading, Kim Rugel flagged the so-called "doji" which appeared on the charts on Tuesday, when the March contract opened and closed at pretty much the same level, travelling in both directions in between.

"The doji on the technical chart suggests uncertainty" she said.

"The lower low/lower high trading range implies more down side. I would suspect market is probing for the bottom, but needs a fresh catalyst to give it a push."

While there was little in the news early on to stimulate gains, help from the weaker dollar made the default move upwards, and soybeans for March stood up 0.2% at $14.50 a bushel, with the May lot gaining 0.2% to $14.35 a bushel.

That kept the May lot above most moving averages, including the 50-, 75-, 100- and 200-day lines.

'Inconvenient truth'

As for soft commodities, the "bargain" hunting in cotton which enabled New York's May cotton lot to recover in the last session from two-week lows held over into Wednesday too.

The contract gained 1.1% to 82.74 cents a pound.

But raw sugar lost initial headway to stand at 17.78 cents a pound, down 0.1% on the day, if above a two-year low of 17.75 cents a pound touched earlier.

"Talk within the global sugar market has refocused on forecasts for a fourth straight global supply surplus in 2013-14 and the negative influence this will have on prices over the year," CBA's Luke Mathews said. 

"The ongoing rebuild in global supplies is an inconvenient truth for the bulls in the sugar pit."

'Unusually favourable preconditions'

In Kuala Lumpur, palm oil lost early gains too, falling from an intraday top of 2,443 ringgit a tonne for May delivery to stand at 2,414 ringgit a tonne, a drop of 0.2%.

Latest export data from cargo surveyors showed Malaysian shipments speeding up from mid-month doldrums to post a gain of 2.7% for the first 25 days of February, compared with the same period of January, according to SGS, with Intertek pegging the increase at 4.6%.

And Oil World on Tuesday highlighted the potential for lower prices, which remain not far from two year lows, to spur demand for palm oil, forecasting that imports will rise to 42.7m tonnes in 2012-13, from 40.2m tonnes the season before.

"The preconditions for the demand of palm oil and its sister product palm kernel oil are unusually favourable for the remainder of this season, given waning competition from other vegetable oils," the analysis group said.

However, the vegetable oil was undermined by a drop of 0.7% to 8,324 yuan a tonne in futures in rival soyoil on the Dalian exchange in China, a major palm oil importer.

Evening markets: some struggling ags rebound. One doesn't
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