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Evening markets: profit taking blunts spike in grain futures

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Month ends are often seen as a period of weakness for agricultural commodities, as funds sell down positions as part of a washing up exercise.

And many crops tried to keep up the tradition on Wednesday despite central banks deploying big monetary policy guns in an effort to get/keep the world economy moving.

First, China's central bank announced its first cut in three years in its requirements for the reserves that banks must keep against loans, signalling easier borrowing, to purchase assets such as commodities.

And, hours later, central banks of Canada, the eurozone, Japan, Switzerland, the UK and the US revealed a co-ordinated drive to enable banks easier access to dollars in times of need.

Rising tide

The moves drove prices of many risk assets crazy, with shares closing up 3.2% in London, 5.0% in Frankfurt and standing 3.4% higher in late deals in New York.

The dollar tumbled 0.8% against a basket of currencies, making it that much easier for dollar-denominated assets to make ground, making them cheaper as exports.

And a good number of commodities did rally, with the CRB raw materials index adding 1.1%, helped by a 5% jump in London



Signally for grain followers, Chicago


for March added a further 4% to $3.20 a bushel, taking their gains this week above 11%. Oats are seen as a market leader.

'Very disappointing efforts'

But not this time. Many agricultural commodities, while spiking earlier, found gains difficult to hang on to.

"The grains and softs put in a very disappointing efforts - as an example,


managed a 20-cent rally post the swap news, only to close flat. Very poor," Scott Briggs at Australia & New Zealand Bank said.

In fact, Chicago wheat for March, having jumped to $6.29 ¼ a bushel at its intraday high, was seen closing down 0.3% at $6.14 a bushel once the settlement procedure had been finished with.

Kansas hard red winter wheat for March tumbled 1.3% to $6.61 a bushel, while Minneapolis hard red spring wheat shed 1.2% to $8.23 ½ a bushel.

'Significant downgrades'

Sure, there was mixed news on deliveries against the December contracts, which began their expiry process, with 440 contracts delivered in Chicago, more than some observers had expected, if a handful in Kansas and none in Minneapolis

Plentiful deliveries are viewed as a sign of overpriced futures, which encourage producers to cash in in Chicago rather than on the cash market.

But things look to be getting worse in Australia, with Luke Mathews, at Commonwealth Bank of Australia, the first that has seen to make the direct comparison for rain-caused quality downgrades between this harvest and the dismal (for protein) 2010 one.

"Quality downgrades are now expected to be significant in New South Wales," he said.

And there is now talk of supplies of quality grain, at least, running dry in Russia too.

'Kicking the can…'

But many investors took a cynical view of the central bank action, with Jerry Stowell at Country Futures saying authorities were just "kicking the can down the road in hopes this thing will someday get better", the thing being the broad credit crisis.


, a key signal for crops used to make biofuels, didn't help by, for Brent crude, shedding 0.5%, hurt by data showing strong US inventories.

There were also forecasts of rain for dry US hard red winter wheat areas.

And many investors were just keen to take profits, especially on crops which rallied earlier in the week too.

Chicago wheat for March, for instance, is still up more than 3% on the week despite its negative close on Wednesday.

Ethanol spree


for March ended up 0.4% at $6.08 a bushel, having touched $6.16 a bushel earlier.

The pullback came despite some positive ethanol data, too, with US production of the biofuel rising 13,000 barrels a day last week to 930,000 barrels a day, the highest number for nearly a year.

Inventories fell too, by 500,000 barrels to 17m barrels, indicating demand for the stuff rather than it just being produced to make the most of US tax perks before they expire at the end of the year.

And there were no deliveries in Chicago, although this had been expected.

'Margins are still negative'

But ideas on South American weather were benign, with GrainAnalyst trader Matthew Pierce noting "improving conditions in Argentina", a bearish signal for


too, which closed up 0.6% at $11.31 ½ a bushel for January.

The lot had reached $11.46 a bushel.

Signals are mixed from China, the top buyer, with, on the more bullish side, Mr Pierce noting that "Chinese crush margins are still negative but slowly climbing with the new year expected to see them move positive".

US Commodities put the bearish case that "Chinese soybeans are under US values and thus buying interest has slowed".

'A little optimism'

Soft commodities, which didn't enjoy such strong gains as grains in the last session, when the dollar sank too, proved better able to hang on to headway this time.

New York


soared 4.1% to 236.90 cents a pound for March delivery, with ideas of crop damage in Brazil from dryness and frost.

On Monday, coffee exporter Terra Forte pegged the 2012 harvest at 52.5m bags, well below the figures of up to 60m bags which had been mooted.

And New York raw


closed up 0.9% at 23.69 cents a pound for March.

"It seems there is a little optimism of a bounce at last from the recent malaise, and perhaps in the short to medium term we will see a run up to 24 cents a pound," Thomas Kujawa at Sucden Financial said.




for March closed down a further 0.7% at a two-year low of $2,305 a tonne in New York, depressed by an International Cocoa Organization lift to its estimate for the 2010-11 production surplus.

New York


slumped 2.0% to 90.91 cents a pound for March, amid talk of early mill closures in China, which is suffering disappointing domestic, let alone foreign, demand for textiles.


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