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|Morning markets: Turnaround Tuesday brings crop price gains
By Agrimoney.com - Published 30/10/2012
If Tuesday was marked most in the US by the strike of Hurricane Sandy on New York, that didn't stop Chicago witnessing one of its agricultural market routines – Turnaround Tuesday.
If the last session had been about selling, and talk of funds liquidating soybean positions simply because they could, with many other markets closed, this one started off witness the Tuesday reversal often witnessed in Chicago.
The dollar helped, by shedding 0.2% against a basket of currencies, so giving a fillip to many dollar-denominated assets, such as many commodities, making them more affordable as exports.
But so did a general feeling that the 2% drop in soybeans on Monday, as funds sold an estimated 7,000 contracts, may have been more down to external factors than fundamentals.
"We are reluctant to read too much into Monday's surprisingly large drop in soybean values," Richard Feltes at RJ O'Brien said, suggesting that ag markets are likely to remain "range-bound awaiting more substantive developments on next major turn in global supplies".
South America weather
For that, a big input is South American weather prospects, over which there are disputes over forecasts.
The consensus appears to be that important more central/northerly Brazil soybean areas are in for rain to ease dryness which has slowed plantings, with an estimated 28% of sowings complete compared with 41% a year ago.
"Forecast rainfall in Brazil later this week is expected to improve field conditions for planting and crop establishment – these crop areas have recently been too dry," Luke Mathews at Commonwealth Bank of Australia said.
However, this outlook is by no means universal, with Gail Martell saying the outlook "continues hot and dry" for states including Mato Grosso, Brazil's top producing state.
And in Argentina, where too much rain is an issue, "the forecast is cool and wet in Buenos Aires province once again this week", if looking "somewhat warmer and drier" for Cordoba and Santa Fe.
Chinese crop overstated?
As an extra booster to soybeans too, there is continued talk over fresh Chinese purchases of US crop, amid ideas that the domestic harvest has been far weaker than the 12.6m tonnes that the US Department of Agriculture has suggested
"There is talk that China's soybean production is sub-10m tonnes," Brian Henry at Benson Quinn Commodities said, reaching an area it has not fallen to since 1991's 9.7m-tonne crop.
"This could result in China needing up to 65m tonnes of imports," compared with the 61.0m tonnes in 2012-13 that the USDA has forecast.
Soybeans for November added 0.5% to \$15.35 ¼ a bushel as of 09:05 UK time (04:05 Chicago time), with the better-traded January lot up 0.5% at \$15.37 ½ a bushel.
That was enough to regain a little ground over corn, which managed a positive close – just – to the last session, helped by buy corn-sell soybean spreading.
While funds were still sellers overall in Chicago corn in the last session, at 2,000 lots, the sell-off was far less severe than in soybeans.
Signally, from a technical perspective, the positive finish helped the December contract remain a smidgen above its 100-day moving average, below which it has not closed since mid-June.
And it retained that advantage by adding 0.3% to \$7.49 ¼ a bushel, while gaining the same to \$7.41 a bushel for March delivery.
'Relative price appreciation'
This was actually a touch behind wheat, which added 0.6% to \$8.62 ¾ a bushel for December and the same to \$8.78 a bushel for March delivery, despite heading into a period which it should underperform its fellow grain.
"March corn has gained on March wheat from November 7 to November 19 in 14 of the last 15 years," RJ O'Brien's Mr Feltes said.
Indeed, the broker believes that "most of constructive news on wheat is in the market making corn the more likely candidate for relative price appreciation—especially if the wet spring pattern across southern Brazil and Argentina persists".
Such weather, while slowing all seasonal sowings, may prompt some switch to soybeans, which can be later planted.
'Susceptible to yield losses'
Still, wheat had support from the prospect of a relatively low first rating for the US winter crop when first ratings are released in this week's USDA Crop Progress report, which was expected on Monday but has been delayed.
"Condition is expected to be 45-50% good or excellent, compared to 46% last year," Benson Quinn's Brian Henry said.
At CBA, Luke Mathews said: "When the report is released we expect the USDA to highlight that US soft red winter wheat crops are heading into winter in good shape while moisture deficits in the northern hard red winter wheat belt mean those crops are susceptible to yield losses.
"These hard red winter wheat crop concerns may support prices," accounting for the biggest proportion of the overall US winter wheat crop.
Also, as a reminder of the disappointing state of the Australian crop, National Australia Bank cut to 20.6m tonnes its forecast for the harvest, a figure within the range of current market expectations, but nonetheless way below what producers had been hoping for earlier in the season.
Elsewhere, palm oil fell back below 2,500 ringgit a tonne in Kuala Lumpur, undermined by news that Indonesia is to cut its export tax for crude palm oil to 9% from 13.5% for October.
The reduction comes amid a bitter contest between Indonesia and Malaysia to underpin exports and avoid a build-up in inventories which earlier this month saw Kuala Lumpur prices dip to a three-year low.
The January contract lost 2.0% to 2,498 ringgit a tonne.
And in – electronic trading - in storm-hit New York, cotton continued its revival, adding 0.7% to 73.11 cents a pound for December delivery, amid fears of Hurricane Sandy renewing the squeeze in US supplies which sent prices spiking two weeks ago.
"Hurricane Sandy is expected to result in some discolouration in cotton crops in the south east," Luke Mathews said, if adding that "excessive damage is not expected".
Raw sugar for March added 0.8% to 19.56 cents a pound, with the forecast for Brazil rain, while upbeat for soybean seedings, unhelpful for the cane harvest.
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