AM markets: US export win revives wheat futures. Corn stalls
By - Published 13/01/2014

One of the big questions for agricultural commodity investors on Monday was whether corn could keep up its rally.

The grain managed healthy gains in Chicago in the last session, after the US Department of Agriculture, in key reports, revealed that last year's domestic harvest had been smaller than expected, consumption bigger than thought, and downgraded its estimate for year-end stocks.

Futures rebounded 5% and, as an extra fillip for bulls, put in a key reversal too, trading beyond the limits of the previous session and closing higher.

'Stocks are still plentiful'

But had the stocks estimate - a key pricing indicator, in signalling the extent of competition needed among buyers to secure supplies changed enough really to alter the downward course of corn futures?

Commentators were somewhat, but not wholly, convinced.

"Despite the positive surprise, the longer-term theme of increasing US and world corn inventories remains intact," said Luke Mathews at Commonwealth Bank of Australia.

Richard Feltes at RJ O'Brien said: "Corn stocks are still plentiful, but sub-$4.00-a-bushel corn bears will be relegated to the sidelines until the market is confident that the 2014 US corn crop is off to a good start."

'Priced adequately'

Another US broker said that typically, when a US quarterly stocks report (one of the USDA briefings released on Friday) differs 300m bushels or more from market expectations "we see a limit move in the futures.

"We only got about half of that on Friday and this is because even though the US is not necessarily overly-abundant with corn, we are not in a tight carryout situation either."

The upshot is that "for the first time in a while the market appears to be priced adequately.

"We think this will result in a range between $4.00-4.50 a bushel for old crop corn and we should base our hedging strategies around this premise if you are not completely sold out of old crop yet."

'Wise to sell into rallies'

At Benson Quinn Commodities, Ben Bradbury said that "I'd anticipate some follow through support to begin next week on short covering and technical buying as the March contract finished above its 50-day moving average".

The USDA reports should, after all, "alleviate some of the bearish sentiment surrounding the corn market.

 "However, it is important to note that a 1.631bn-bushel carryout still represents a near doubling of last year's ending stocks.

"I believe the producer would be wise to sell into rallies going forward."

Fund moves

Corn indeed managed some follow-through buying, although it was not huge as of 08:20 UK time (02:20 Chicago time), when Chicago's March contract stood 0.2% higher at $4.33 a bushel.

There is also the factor of whether hedge funds will opt to sell more of their hefty shorts in corn, if they believe that further downward progress in prices will be harder from here.

Speculators held a net short in corn of more than 91,000 contracts as of Tuesday last week, according to regulatory data released late on Friday.

There is also the index fund rebalancing, expected in a week to result in the buying of roughly 100,000 corn contracts, to factor in, with the process expected to continue through Wednesday.

Meanwhile, Indonesia's feed mills association has forecast a 20% rose to 3.6m tonnes in the country's corn imports in 2014.

Still, it was notable that Chinese corn prices, being closely watched for any knock on effects from rejections of some US corn cargoes on grounds of contamination with a Beijing-unapproved GMO variety, were lukewarm in their reaction, adding all of 2 yuan to 2,367 yuan a tonne on the Dalian for May delivery.

'One bullish facet'

In fact, wheat - which plunged on Friday, closing at its lowest since July 2010 - outperformed corn in this session, adding 0.8% to $5.73 a bushel for March delivery.

There was some focus on US winter wheat planting data also released on Friday, which showed sowings some 1.6m acres showed of expectations.

"The one bullish facet for wheat markets is the USDA's conservative estimate of US winter wheat acreage," CBA's Luke Mathews said.

"The USDA forecast US winter wheat area to fall by 3% in 2014-15 and implies US wheat output next year may not meet reach previous expectations."

'Stacked against the wheat market'

But there was another cause for support in victory by US soft red winter wheat (as traded in Chicago) in a tender by Egypt's Gasc authority at the weekend.

That was the first such victory since February last year, and in a much-watched auction. (Egypt is the world's top wheat importer.)

It also followed on from the purchase by Venezuela of 125,000 tonnes of US wheat, as announced earlier on Friday, with talk that Brazil has bought 3-6 cargoes of hard red winter wheat for shipment this month and next.

"With supplies steadily increasing the deck is stacked against the wheat market," Benson Quinn Commodities said.

However, the lower prices, after a sharp decline since the end of November, "should attract additional export demand that would help establish value".

'Relative outperformance'

Soybeans, meanwhile, which emerged pretty neutrally from the USDA reports, eased 0.75 cents to $12.77 a bushel for March delivery.

The USDA stuck by a forecast of 150m bushels for domestic soybean stocks at the end of 2013-14, which "remains a relatively tight US soybean carryout result and should ensure the relative outperformance of US soybean prices", Mr Mathews said.

Still, "in contrast to the tight US supply situation, global oilseed supplies are comfortable", and only likely to get more so with a strong South American harvest on the way.

The signal from the Dalian was neutral too, with the benchmark May contact closing unchanged at 4,605 yuan a tonne, after eight successive sessions of gains.

Stable cotton

Among soft commodities, the USDA data were seen as pretty neutral too, raising the estimate for world stocks, but lowering the forecast for the domestic stocks-to-use ratio a touch.

New York cotton for March, which closed the last session down some 0.3%, added 0.4% to 92.91 cents a pound.

Back among oilseeds, Kuala Lumpur palm oil shed 0.1% to 2,514 ringgit a tonne, continued to feel pressure from Friday's data showing larger-than-expected Malaysian inventories of the vegetable oil, and a weak start to January for exports.

Palm oil has yet to record a positive session in 2014, during which it has lost more than 5% so far.

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