There was something slapstick about the tumble in
agricultural commodities on Wednesday, as wheat and sugar chalked up multi-year
Investors had been expecting some buying pressure for 2013's
most unpopular ags, such as corn, raw sugar and wheat, thanks to the (alleged) start of the index fund rebalancing process,
which adjusts portfolio weightings back to mandated levels.
(This means buying 2013's losers, left underweight in
portfolios by their slippage, and selling the winners.)
And many expected index funds, forecast to buy some
90,000-100,000 contracts of corn alone, to appear in force near the close, as
they have done in the past.
However, a late wave of selling met no substantial buying
(RJ O'Brien reported that in fact the reweighting -
involving purchases of 150,000 Chicago corn contracts, 78,000 soyoil contracts,
8,500 wheat lots and sales of 4,250 soymeal lots – will not start until
The result was akin to the missing chair gag in a Charlie Chaplin
Chicago corn and wheat futures, and to a lesser extent New
York raw sugar, tumbled precipitously at the close as the support they had
expected was nowhere to be found, to end pretty much near their intraday lows.
Chicago wheat for March closed down 2.3% at $5.88 ¾ a
bushel, a contract closing low, and the lowest for a spot contract since
Chicago corn for March fell 2.1% to $4.17 a bushel, its own
contract closing low, and 5 cents from matching a three-year low.
New York sugar for March settled 2.0% down at 15.74 cents a
pound, the weakest finish since June 2010.
The hedge funds which ended 2013 with their longest bearish
positioning streak on record, driven by a huge worsening in sentiment in sugar
and a rise to the their net short in wheat to an all-time high, were looking
thoroughly in the money.
So much for commodity funds being unable to post profits.
"It feels we are in a supply-driven bear market," Don Roose,
president of US Commodities, told Agrimoney.com.
"Investors appear more frightened of large supplies than
from short covering, as long as South American weather stays OK."
Argentine and Brazilian conditions are key to current
sentiment, with corn and soybean crops being made there (and some early
harvesting done in Brazil too).
It little helped that conditions are looking up in
Argentina, where MDA said that "rains over the next few days will ease dryness
in Santa Fe and Entre Rios, favouring corn and soybeans".
OK, "dryness is expected to linger across La Pampa and south
western Buenos Aires" provinces.
And WxRisk.com warned that even elsewhere dryness is due to
"By Sunday and Monday, 100 degrees Fahrenheit (38 Celsius)
temperatures are back in place across Buenos Aires and La Pampa".
And in the six-to-10 day outlook "all of Argentina is
completely dry and begins to turn much hotter again especially over central and
southern portions of Argentina.
"The model data is pretty strong that another round of
serious heat will move into all of central eastern and eventually northern
But further-ahead forecasts are trumped by near-term ones,
which are more likely to prove accurate.
As far as CHS Hedging was concerned "timely rainfall for
both Brazil and Argentina is confirmed for the weekend, putting added pressure
on corn and soybeans".
And as an extra pressure, Shanghai-based research group JC
Intelligence halved to 2.2m tonnes its forecast for China's corn imports in
2013-14, following the rejection of a series of US cargoes on grounds of
containing a genetically modified variety unapproved by Beijing.
Furthermore, a series of US Department of Agriculture reports on Friday are expected to prove negative for prices, raising estimates for domestic corn production and inventories in 2013-14.
"Speculation that the USDA will raise its corn production and stocks adds to the bearish tone today," CHS Hedging said.
Meanwhile, weekly US ethanol
data proved bearish.
The production figure was alright, up 6,000 barrels a day at
919,000 barrels a day last week, but a jump of 556,000 barrels in inventories
questioned demand for this output.
"Ethanol inventory was the bearish side, with ethanol
inventories moving up to 16.1m barrels," said Darrell Holaday at Country Futures.
"This indicated that ethanol is not moving and that the
increased production is being pushed into inventory."
Ethanol itself dropped 1.6% to $1.913 a gallon for February delivery.
As for soybeans,
they at least had one stick with which to chase off bears, with the US
Department of Agriculture announcement of yet another export sale to China, of
And it had some claim to support too from talk that China is
relaxing checks (related to the GM corn worries) of distillers' grains, a corn byproduct which is a protein source in
livestock feed, and so acts as a rival to soymeal
– so affecting soy markets.
In fact, the US exported a record 1.1m tonnes of distillers'
grains in November.
But with soymeal falling 0.8% to $412.50 a short ton, as
well as the tumble in grains, soybeans found it hard to maintain their footing,
and ended 0.5% lower at $12.69 ¼ a bushel in Chicago for March delivery.
RJ O' Brien's Richard Feltes said: "I must say that the two-day
reaction of US soy futures to 500,000 tonnes of additional old crop US soybean
sales to China has been disappointing.
"It suggests that the soy market is focused more on world
soy stocks trending higher than tightening old crop US soy stocks."
Meanwhile, wheat faced pressure from upbeat hopes for Ukraine's harvest this year, which UkrAgroConsult forecast would beat the 2013 result despite the dismal start to the autumn sowing season.
The rains delayed early plantings, combined with an unusually warm October and November, actually got seedlings off to a strong start.
And Argentina is a negative for wheat too, with talk that a government meeting on Friday will back the approval of 1.5m tonnes in exports - to which read supplies for Brazil which would otherwise from North America.
That said, Canada is looking an increasingly strong competitor on export markets, armed with a weakening currency as well as a record harvest.
"The Canadian dollar hit a four-year low overnight and that is making the offers for the record large Canadian wheat crop very attractive on the world market," Darrell Holaday at Country Futures said.
'Little sign of
As for raw sugar,
it attracted the usual crop of bearish comment, amid a succession of annual
production surpluses, and with Australia looking to do its best for the next cane harvest too.
"There is little fundamental news currently about to support
values and the tail of the Brazil crop continues to yield more supply," Nick
Penney, co-head of Sucden Financial's softs department, said.
"Added to this factor is the threat of further raw sugar
supplies are expected out of India once authorities there decide on the best
way of supporting exports."
Also, although weather in China has been very cold, "and
harvesting affected by frosts, there is little sign of demand from this quarter
as stocks are deemed to be plentiful and internal prices would need to rise
much further to open up an import window."
coffee, another big 2013 loser, did manage gains on Wednesday, continuing
its recent record of volatility, amid – some - ideas that the Brazilian harvest
this year may not turn out as huge as some believe it will.
"The 2014 crop in Brazil may fail to live up to
expectations," Commerzbank said, warning that "a trading company even expressed
the view that production could collapse, giving rise to a 5m-bag deficit on the
worldwide coffee market".
Arabica coffee for March soared 3.1% to 120.90 cents a pound
in New York, the highest close for a spot contract in nearly five months.
That took the contract back over its 200-day moving average,
on the continuous chart, for only the third close since September 2011.