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Evening markets: crops gain as investors bet on demand boost

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Early reluctance in grains to follow other risk assets higher gave way to something altogether more enthusiastic, as traders looked to the demand that prices well below 2011 peaks might encourage.

It was not just announced deals from earlier in the week that got investors excited, with Bangladesh Libya buying

wheat

, and Jordan seeking the grain and buying

barley

, and Egypt purchasing

corn

.

On Thursday, Kuwait bought 20,000 tonnes of Canadian wheat, and 30,000 tonnes of barley of optional origin.

And from America, the US Department of Agriculture revealed that Mexico purchased 154,700 tonnes of corn, South Korea bought 110,000 tonnes of the grain, and China bought 120,000 tonnes of

soybeans

.

'China a big buyer'

The deals, while too late to show up in the weekly US export sales data due tomorrow, fuelled expectations of big numbers turning up.

"Export sales tomorrow are also expected to be better. China is expected to show up as a big buyer of soybeans," US Commodities said.

And is this just the thin end of the wedge?

"There is talk of China buying several cargoes of beans which is providing support to the nearby soybean futures," Paul Georgy at Allendale said.

At rival broker Country Futures, Darrell Holaday said: "China continues to be active in the US soybean market and some of the market optimism is based on ideas that they may be moving some business from South America to the US."

'Heat ridge/dome'

And that might not be surprising given results of Brazil's harvest so far, albeit with damage from too much rain, as struck the likes of Mato Grosso, rather than too little the issue thus far.

"The early soybean harvest taking place in Brazil is yielding disappointing results as much of this area dealt with excess moisture at inopportune times," Benson Quinn Commodities said.

Nor may the rain relief noted for dry areas of Argentina and Brazil expected for this weekend mark the end of the weather test for crops.

The latest GFS model "now showing a heat ridge/dome developing as we move to the end of the month over Bolivia, north west Argentina, northern Chile and the south west southern Pacific ocean", WxRisk.com said.

"Temperatures rise significantly in the last few days in January."

'Crush is now positive'

It is perhaps little surprise that US exports are now looking much more competitive.

"Offers of South American soybeans remain firm," Benson Quinn Commodities said, noting that US wheat "has gotten much more competitive" too as Black Sea exporters struggle to keep prices down, with dryness a worry in Ukraine, and merchants in Russia having to travel far now to find supplies.

Furthermore, from China's perspective, the "soybean crush is now positive", according to US Commodities, which estimates Chinese purchases of the oilseed from the US at 8-10 cargoes.

"Remember China is on a pace to import 1m tonnes of soybeans a week from the world."

Corn is now competitive into Asia too, coming in $95 a tonne cheaper than Chinese corn, excluding VAT.

Bright macro picture

The idea of thoughts turning to demand chimed with the broader market theme too, where investors were taking an altogether more optimistic view of the world economy.

Good results from Bank of America and Morgan Stanley, helped, as did data showing US jobless claims falling to a four-year low.

And in the eurozone, hopes rose that Greece will agree a deal with creditors, helping the euro rebound and adding to pressure on the

dollar

, which lost 0.5% against a basket of currencies.

US and European

stocks

hit their highest for five months.

Drier outlook

Grains could not match that record.

But Chicago corn closed up 2.1% at $6.06 a bushel for March delivery, with March soybeans adding 1.1% to $11.97 a bushel.

Wheat did best, as often happens in times of unexpected exuberance, as bears get scared into covering their many short positions in the grain.

Chicago soft red winter wheat for March added 2.3% to $6.05 ¾ a bushel.

Notably, Kansas hard red winter wheat, in which speculators are long, added a more modest 0.8% to $6.58 a bushel.

And this when, as Mr Holaday noted, "the prospect for moisture in the Plains has been reduced from earlier models for next week", the Plains including huge, and rain needy, hard red winter wheat areas.

'Cautiously covering shorts'

The mood spilled over into some soft commodities too, with

cotton

, deemed by its non-food nature on of the crops most exposed to economic considerations, adding 0.7% to 98.17 cents a pound in New York, for March delivery.

New York raw

sugar

added 2.5% to 24.61 cents a pound for March, continuing to gain strength too from ideas of rain delays to 2012-13 shipments from Latin America.

"With reports out pointing to a delayed harvest in Brazil due to weather and potential demand on raws out of Central America before March expiry, the trade seems to be cautiously covering shorts as the much touted surplus seems to be moving ever further out," Nick Penney at Sucden Financial said.

London white sugar closed higher for a 10th successive session, and at a two month high, adding 1.8% to $641.60 a tonne.

By Agrimoney.com

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