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Evening markets: China factor keeps corn and soybeans ahead

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Usually the China-buying-US-

corn

trade has been very much in the "buy the rumour, sell the fact" vein, with strong purchasing up until the event is confirmed – when the grain tanks.

On Tuesday, the US Department of Agriculture confirmed a sale of 240,000 tonnes of corn to an "unknown" destination, widely presumed to be China.

Darrell Holaday at Country Futures said: "This is the China purchase that has been talked about since last Friday," and which has helped extend a rally in the grain.

Yet this time, the grain braved selling to end 0.4% higher at $6.62 a bushel for Chicago's best-traded May contract.

The near-to-expiring May lot ended up 0.4% at $6.74 a bushel, the highest for a spot contract in nearly six months.

'All beer and skittles'

That was down in part to a landmark day for risk assets, with Wall Street

shares

on course to close at their highest since June 2008, helped by data showing US retail sales rising last month at their fastest pace in five months.

In Europe, London stocks ended 1.1% higher, with Frankfurt shares gaining 1.4% and Paris shares 1.7%.

"It's all beer and skittles on the macro front apparently - equities making new highs, bond yields rallying, inflation breakevens rallying, Chinese shares still rallying," Scott Briggs, director, agricultural commodities at Australia & New Zealand Bank, said.

'Additional fund buying'

The average commodity, as measured by the CRB index, added 0.7%, with agricultural commodities in particular seen continuing a trend of appealing to fast money, as highlighted by the latest regulatory data.

"Fund buying continues to support the market," US Commodities said.

Rival broker Benson Quinn Commodities added: "The prospect of the US doing additional export business, along with the positive upward price momentum, has the potential to trigger additional fund buying."

Furthermore, "the speculative community is not expected to show an appetite for establishing shorts until the technical structure of the market weakens".

As Agrimoney.com pointed out this morning, many chart patterns have turned more positive in Chicago.

'Pretty heavy farmer selling'

Benson Quinn advised farmers that the "situation should be viewed as an opportunity to establish additional old and new crop sales".

And many growers have indeed been exploiting higher prices, with Mr Briggs among those to report "pretty heavy farmer selling of old crop US corn into the system".

Still, on the positive side for values, it is not clear that 240,000 tonnes is all the corn that China bought, with talk of 800,000 tonnes of purchases.

That is no totally out of the question, given that corn prices on China's Dalian exchange stand at the equivalent of about $9.85 a bushel.

"The Chinese government hints at having comfortable supplies of corn, while it appears private firms are focused on securing imports at sizeable discounts," Benson Quinn said.

Import arb 'now open'

For

soybeans

, Dalian values are north of $19 a bushel, again opening up the potential for Chinese purchases.

Indeed, Morgan Stanley, in a weekly report, said that the China import arbitrage was "now open", with purchases of US soybeans $0.29 a bushel cheaper than local supplies, even after factoring in transport costs, import tariffs and VAT.

Ideas of strong Chinese imports got a boost from Oil World too, which forecast that these buy-ins will help US soybean shipments record year-on-year growth in the March-to-August period, the second half of 2011-12, after lagging in the first half.

Furthermore, worries about South American output made a reappearance after Michael Cordonnier, at Soybean and Corn Advisor, cut by 1m tonnes to 67m tonnes his estimate for the Brazilian soybean crop, below the USDA's 67m-tonne number.

Chicago soybeans for May ended up 1.1% at $13.48 ¾ a bushel.

'Wet conditions to prevail'

With fellow crops higher it was difficult for Chicago (soft red winter)

wheat

to stray too far, given that it is at an unusual discount to corn.

The May contract dropped 0.4% to $6.49 a bushel.

That was a lower fall than suffered by Kansas (hard red) wheat for May, which dropped 1.2% to $6.87 ½ a bushel, and Minneapolis spring wheat for May, which fell 1.0% to $8.11 a bushel.

These wheats, as higher quality crop, are less connected with corn, a feed grain, and felt pressure from better prospects for US winter wheat.

"The forecast for wet conditions to prevail in the US Plains for the next couple of weeks is weighing on wheat values," Mr Holaday said.

Dry Europe

He added: "Weather models are still too dry for Europe and that is supportive" for prices.

USDA officials have reported some damage done already to Spanish winter grains, with a lack of moisture ringing alarm bells in France, the UK and Morocco too.

That helped European wheat prices do better, with Paris wheat for May ending square at E211.50 a tonne, while London May wheat added 0.1% to £169.00 a tonne.

But they felt pressure from farmer selling too.

"Good first hand origination and very little consumer buying led to a sell-off into the close," UK traders at a major European commodities house said.

They added: "European Union wheat remains highly uncompetitive on old crop in the world market, with US wheat being more price-competitive into Algeria and Morocco, two of France's traditional main customers."

Still, there were fewer worries over Paris

rapeseed

which for May, helped by fellow oilseed soybeans, added 0.9% to a nine-month closing high, for a spot contract, of E473.00 a tonne. It was nigh on a contract high for the May lot itself.

Coffee revives

The better macro-economic feel spilled over into many soft commodity markets too, with even New York

coffee

managing to rediscover forward gears, adding 0.7% to 186.15 cents a pound for May delivery.

While the lot has been pressed by producer rushing to sell at what remain historically elevated prices, if down some 40% from a high in April last year, a high level of short positions among speculators is seen making them twitchy, on the threat of a short-covering rally.

New York raw

sugar

for May added 1.5% to 24.13 cents a pound, continuing to gain support from Copersucar's downgrade to 32m tonnes, from 34m tonnes, in its forecast for sugar output in Brazil's important Centre South region this year.

"It seems the weak shorts from yesterday are now flushed out," Thomas Kujawa at Sucden Financial added.

By Agrimoney.com

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