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Evening markets: charts help soybeans buck ags' weak trend

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What started off as a broadly positive day for financial markets didn't end that way, as investors turned from relief at the fresh governments in Greece and Italy to what the next chapter of the eurozone crisis might bring.

After all, the eurozone's debt problems are hardly over, as Unicredit reminded in unveiling a third-quarter loss of E10.4bn, in part because of writedowns on Greek bonds, and a E7.5bn rights issue to shore up its capital position.

Meanwhile, yields rose on French and Belgian bonds, indicative of weakened faith in the country's prospects, while rising in German and UK sovereign debt, seen as the region's safe havens.

Shares

fell back, with stockmarkets closing lower in Europe, by more than 1% in Frankfurt and Paris, and standing 0.8% lower on Wall Street in late deals.

The

dollar

recovered, another sign of a "risk-off" attitude, besides hampering dollar-denominated assets such as many commodities by making them more expensive to buyers in other currencies.

And, indeed, the average commodity, as measured by the CRB index, dropped 0.7%, with Brent

crude

shedding more than 2%.

Energy lead

Indeed, that was an extra problem for

corn

which, as a major biofuel feedstock, has a tendency to move in line with oil.

"A weaker energy sector has caused some problems in corn," Darrell Holaday at Country Futures said, noting that the grain "did follow the stronger energy sector last week".

"This is the biggest concern with the corn market."

Well, that and soft US exports, which Darrel Good at the University of Illinois noted are running "well below the average pace needed to reach the US Department of Agriculture projection" for 2011-12.

And there are higher sowings forecast for 2012 too.

'Apparent battle'

Set against that is the continuing strong cash market, with Paul Georgy at broker Allendale noting that the "cash market basis is suggesting farmers have closed the bin doors, probably until mid-December".

Professor Good said: "Basis levels generally remain quite strong and at record levels for this time of year in some markets".

Indeed, the corn market is witnessing an "apparent battle between current demand strength and expected weakness in 2012", evident in spreads between corn futures which "remain very choppy, with the December-July spread fluctuating between 18 and 23 cents" a bushel.

The spread actually ended on Monday at 17.75 cents, with the December contract closing down 0.8% at $6.33 ½ a bushel, and the July lot down the same at $6.51 ¼ a bushel.

'Opportunistic, or a tester'

That offered Chicago

wheat

a chance to close its unusual discount to corn. Which is did by losing a relatively modest 0.2% to finish at $6.15 ¾ a bushel.

Benson Quinn noted that "increased world wheat trade offers support to wheat markets", with Australia reminding over a 150,000-tonne sale to Saudi Arabia, the biggest on this route for more than 20 years.

However, not all that trade was quite so upbeat, with Malaysia buying Ukrainian feed wheat at $275 a tonne including freight, a price seen as "cheap" by Scott Briggs at Australia & New Zealand's London office.

"That said it was containerised so either opportunistic or a tester," he added.

Shipping setback

Indeed, it seemed some technical factors were at work in the strength of Chicago's December lot, which was not reflected in the March contract, which ended down 1.2% at $6.38 ¼ a bushel.

Nor was it seen in Kansas hard red winter wheat, which tumbled 1.7% to $6.92 a bushel, against a headwind of rains improving prospects for seedlings on the drought-tested US southern Plains.

European wheat ended lower too, down 1.1% at E179.75 a tonne for the Paris March contract.

London's best-traded May lot closed down 1.0% at £151.75 a tonne, despite a fillip to demand presented by a lack of water in some European countries.

"Low water levels in both the Rhine and the Danube are restricting barge traffic into the feed mills in Germany and the Low Countries," UK grain traders at a major commodities house said.

"Consequently, those consumers are buying spot cargoes off the east coast of the UK."

Crush signals

It was left to

soybeans

to polish their credentials a Chicago bulls' new best friend, managing a positive close – just – up 0.2% at $11.78 ¼ a bushel for January delivery.

And this despite industry data showing the US soybean crush at 141.2m bushels in October, at the low end of expectations.

Some fundamental reasons were proposed for soybeans' strength, with Benson Quinn Commodities noting that a "drier weather outlook for South American soybean production areas offers support to soybeans", signalling that yields for the crop harvested early in 2012 may not turn out quite as supreme as analysts are expecting.

Talk of Chinese buying interest continued to echo around Chicago. And, indeed, soybean export data, as measured by cargo inspections, were firm, at 53.5m bushels. (Corn and wheat data were weak.)

Furthermore, the crush figure revealed a tumble to 1.88m pounds in US

soyoil

stocks, the lowest for nearly six years, and signalling that demand from that quarter at least is firm. Soyoil itself added 0.5% to 51.22 cents a pound for December delivery.

'One supportive factor…'

However, there were technical reasons too for the oilseed's strength, including the so-called roll, when investors swap nearby contracts for those further ahead to avoid being left with illiquid lots, and potentially physical delivery issues, in the expiry process.

The sale of December corn contracts has involved the unwinding of "long corn, short soybean" spreads, so supporting the price of the oilseed.

Meanwhile, GrainAnalyst.com trader Matthew Pierce said that the "one supportive factor for soybeans is the weekly chart which is holding the 200-day moving average.

"The last time they tested this level a $1.20-a-bushel rally ensued in a week."

'High surplus still expected'

Among soft commodities, New York

coffee

dropped 1.3% to 234.15 cents a pound for March on ideas of rain returning to Brazil's coffee belt, where tree are short of moisture.

Raw

sugar

finished down 1.0% at 24.75 cents a pound in New York for March delivery.

Commerzbank noted that "unclear signals for the sugar market are coming from India", with output estimates of 25m-26m tonnes now seen as potentially too high, and raising doubts that producers will get consent for the 4m tonnes in exports they have lobbied for.

"Even so, a high surplus is still expected worldwide. Thailand, for example, has only reported minor damage by the floods lately, while the Ukraine has raised its sugarbeet crop by nearly 30%, year-on-year, and could strongly expand its exports," the bank said.

"In the EU, too, sugarbeet production is likely to have reached a record level.

"Overall, it is therefore hardly surprising that raw sugar prices are well below their peaks of last February and the forward curve has flattened significantly in past weeks."

'Biggest dog'

Cocoa

for December dropped 1.8% to $2,444 a tonne in New York, a fresh two-year low for a spot contract, and weakened by continuing talk of firm production.

"Cocoa is the biggest dog among the softs. Supplies are more than adequate and therefore likely to continue to drag values down, so selling any temporary strength seems in play," softs trader Jurgens Bauer said.

By Agrimoney.com

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