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Evening markets: wheat attracts buying, as soybeans succumb

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Wheat

back in demand?

The grain rose in Chicago for the first time this week, and in some style, as some persistent market concerns prompted investors to call time on running up short positions, and close a few instead.

In part this was down to the unwinding of a few more "long

soybean

, short

corn

/wheat" positions which were popular earlier in the month, but which looked less appealing on Thursday following data showing Chinese and European manufacturing sector shrinking.

A purchasing managers index compiled by HSBC showed Chinese factory activity decline for a fifth successive month, a key issue for commodity markets when the country is such a big buyer of many raw materials, including soybeans.

'Bearish' data

The soybean trade picture was hardly improved by a US Department of Agriculture report showing US sales of the oilseed to foreign buyers at 533,000 tonnes, 2011 and 2012 crop combined, for the week to last Thursday – a fall of 62% week on week.

The figure was also well below market expectations of sales of at least 900,000 tonnes.

FCStone termed the number "bearish" while Darrell Holaday at Country Futures said: "Soybean export sales were disappointing and that has prompted some selling."

Soybeans for May closed down 0.4% at $13.49 ½ a bushel.

'Growing concern'

But there were fundamental reasons, besides the unwinding of spreads with soybeans, for investors to view wheat more kindly, such as the dry weather in parts of western Europe and North Africa.

"European Union forecasts and western Russia do not have much precipitation forecasted for the next two weeks. This is a growing concern," US Commodities said.

Closer to the concerns, UK grain traders at a major European commodities house noted that "grain markets have been supported this afternoon by an expected increase in Moroccan imports in the wake of a very dry winter" (as covered by Agrimoney.com earlier this week).

And there are weather concerns elsewhere too, including Canada where "field moisture has improved in the western Prairies with 15-30mm of precipitation recently, but drought has not been resolved due to a very severe drought last fall", according to Gail Martell at Martell Crop Projections.

"To a Midwest corn farmer, a 20-60mm soil moisture deficit is not too daunting. But in the Prairies, where the climate is much drier, drought may be difficult to overcome."

'Especially vulnerable'

In the US too, there are mixed feelings over the warm weather which has, according to market talk, put some soft red winter wheat in the south eastern US two-to-three weeks ahead of schedule in development.

"Early harvested bushes could show up in the cash markets in late April and early May," FCStone said.

At Hightower Report, Terry Roggensack said: "The active growing season so early in the year means that crops will also mature faster than normal, and this will leave the winter wheat crop especially vulnerable to freeze damage if temperatures turn cold in early-to-mid April.

"There is a hint of more normal temperatures near the end of the two-week forecast and traders will be watching for any sign of colder-than-normal weather into the central Plains."

And this when funds are holding "hefty net short position in wheat", meaning that "any shifts in the production outlook could keep the market vulnerable to volatile trade".

Strong exports

On the demand side, a rash of recent demand from buyers, with Tunisia following the trend by purchasing 50,000 tonnes of soft wheat on Thursday, showed up in US export sales.

At 540,000 tonnes, they beat trade guesses, besides the previous week's 360,000 tonnes.

European Union export data, as measured by shipment licences, were strong too, at 440,000 tonnes, a figure which as far as Agrimoney.com can make out is the biggest since November, and the second-highest of 2011-12.

(OK, the total so far in the season, at 10.3m tonnes, is nonetheless still well below the 15.0m tonnes cleared at the same time in 2010-11.)

Wheat for May added 1.6% to $6.46 ¼ a bushel in Chicago, and 1.3% to $6.84 a bushel in Kansas.

In Europe, Paris wheat for May closed up 0.7% at E210.25 a tonne, with its London peer adding 0.3% to £170.25 a tonne.

Argentine downgrade

The performance in Chicago wheat was enough to regain it a premium over corn, a position it more normally sits in, although corn itself enjoyed a positive day, adding 0.4% to $6.44 ½ a bushel for May.

Corn export sales were strong, at 917,000 tonnes 2011 and 2012 crop combined, ahead of market estimates of at best a 850,000-tonne number.

The increase was led by purchases of 475,000 tonnes by Japan (which has been seen by traders as taking a greater interest in Ukrainian supplies).

Furthermore, Argentina estimated its corn crop at 21.2m tonnes, within a previous range of 20.5m-22.0m tonnes, but a figure lower than some had expected.

The USDA has the crop at 22.0m tonnes.

Technically, there was also some relief that the May lot did not add its 100-day moving average to the key chart points it has surrendered this week. Indeed, the contract retook its 50-day moving average.

'Shorts are still running'

Among soft commodities, strong US export sales data helped

cotton

, of which China is the top importer, avoid the soft Chinese economic news to close up 1.4% at 89.58 cents a pound in New York, for May delivery.

And New York's

May

raw sugar contract closed up 2.3% at 25.91 cents a pound.

"It seems the shorts are still running and nervously waiting for the fundamental to get a grip of the market," Thomas Kujawa at Sucden Financial said, the fundamentals being expectations of the return to surplus in 2011-12 taking hold in physical terms.

'Large Brazilian crop'

But New York arabica

coffee

having staged something of a recovery earlier in the week, helped by broker comment, succumbed to a fresh wave of selling.

"Coffee market bears focus on expectations of a large Brazilian crop," Lynette Tan at Phillip Futures noted.

She flagged points in bulls' favour too, such as poor Colombian output and stocks which remain tight.

"Low certified arabica stocks at New York's Ice exchange which remain close to their lowest in 11 years at around 1.6m bags."

Still, May coffee closed down 4.2% at 176.95 cents a pound, their first close below 180 cents in 17 months.

By Agrimoney.com

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