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|Morning markets: macro-market caution weighs on crop prices
By Agrimoney.com - Published 23/10/2012
Trust Tuesday to bring a turnaround in Chicago.
The second day of the week has a knack for reversing a trend on the first, so traders say.
This time, that meant selling pressure after soybeans and wheat at least managed gains on Monday – wheat achieving its fourth positive close.
And selling was in line too with the downward trend on external markets, where it is not just some disappointing US corporate results that is worrying investors, but the prospect of a US Federal Reserve interest rate meeting and data on China too.
China will on Wednesday see the next "flash" survey of its manufacturing sector, just as many investors are seeking to assess whether the world's second-biggest economy can really avoid a "hard landing" in its slowdown from historically elevated levels.
Shares fell 0.9% in Shanghai and 0.8% in Seoul, although some markets, such as Tokyo, managed marginal gains.
And London copper got off to a soft start, setting a six-week low.
The weak tone saw losses pretty much across the board in agricultural commodities, as investors looked to profit-taking, rather than relying on the easing of harvest pressure to allow further buoyancy.
Harvest is, after all, "basically over", Mike Mawdsley at Market 1 noted after US Department of Agriculture data showed the corn harvest 87% finished, and the soybean one 80% complete.
'Demand rationing evident'
And there have been some negative signals abroad.
For corn, besides the weak cattle on feed data, implying rationing on that score, there has been more evidence of weak export demand, with latest weekly export inspections coming in at 9.61bn bushels – below expectations, the 17.2m bushels the previous week and the 29.7m bushels a year before.
"Demand rationing continues to be evident in the form of US export commitments though the spread between South American premiums continues to narrow," Brian Henry at Benson Quinn Commodities said, Argentina and Brazil having picked up a mass of trade from importers of late.
"Firming South American premiums could force some world buyers to the US."
Soybeans saw yet another upgrade to Brazilian crop prospects. With Safras e Mercado edging its crop forecast higher by 200,000 tonnes to 82.5m tonnes, an increase put down to expectations for a slightly bigger area of sowings than previously thought.
That eased some concerns too at ideas that rainfall levels which have proved less than ideal could trim production, despite rattling some nerves on US markets.
"The need for rain in parts of Brazil is a bullish fundamental and giving buyers a reason to probe the long side again," Mr Mawdsley said.
In fact, in the last session Luke Mathews at Commonwealth Bank of Australia noted that prices of nearby futures "were supported by another strong US soybean export inspections report while longer dated supplies were weighed down on expectations that supplies will rebound sharply higher in 2013".
'Doesn't foster much optimism'
For wheat, there was a fillip for the US in winning an order of 104,000 tonnes from the Taiwan Flour Millers' Association, at prices from \$344.79 a tonne FOB (for white wheat) to \$390.98 a tonne for dark northern spring wheat.
However, this followed offers to an Iraqi tender, the results of which are set to be announced later this week, which put the grain well out of the running, with cheapest offers at \$438.13 a tonne including freight, compared with \$401.56 a tonne for Hungarian/Romanian grain.
Grain from the likes of Canada and Australia was also not too far out of the running.
"The tender line up information I saw doesn't foster much optimism on US exports increasing in the near term," Benson Quinn's Brian Henry said.
'Slow rate of emergence'
OK, USDA data overnight were hardly encouraging on the winter wheat crop for 2013, showing emergence of seedlings still lagging, even if farmers have just about caught up on sowings.
"The slow rate of emergence is of particular concern in the dry northern hard red winter wheat belt," CBA's Mr Mathews said.
"For example, just 13% of South Dakota wheat has emerged versus the five-year average of 80%. These crops will be poorly established leading into winter dormancy."
But as Mr Henry said "the speculative trader is still hesitant to commit to holding long positions in all three" of the main Chicago commodities, with latest regulatory data showing net long holdings down for corn, wheat and especially soybeans.
They certainly weren't filling their boosts as of 09:35 UK time (03:35 Chicago time) when Chicago wheat for December was 1.0% lower at \$8.69 ½ a bushel.
December corn dropped 0.8% to \$7.55 ½ a bushel, while November soybeans fell 0.8% to \$15.34.
'Downside may be limited'
The negative mood even spread to Kuala Lumpur, where palm oil for January eased 1.1% to 2,549 ringgit a tonne, defying some better ideas over demand for the vegetable oil, after a fall in prices to a three-year low.
At Phillip Futures, Ker Chung Yang also noted that "downside may be limited by concerns that annual floods in key oil palm growing regions that could disrupt harvesting, and seasonally lower production towards the end of the year."
He also flagged "expectations that firm export demand the rest of the month could help reduce end-month inventory levels".
"Lower crude palm oil production and strong export demand may reduce stockpiles, which hit an all-time high of 2.48m tonnes at end-September."
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