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Evening markets: wheat leads sell-off as funds run for cover

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Is this the end of the world as we know it?

It certainly felt that way, looking at the wreckage left in the grains markets by another day of liquidation, this one, by some measures, the biggest yet of the current run.

Chicago

wheat

for July slumped 5.0% to close at a three-month low of $6.73 ¼ a bushel, taking its decline so far this month above 14%.

Another day like this, and we will be talking 11-month bottoms.

'Dramatic liquidation'

OK, Chicago

corn

for July avoided touching, for a third successive day, the maximum downside allowed by the exchange.

But its finish down 3.7% at $7.01 ½ a bushel was hardly pretty. The contract has lost 11% this week alone.

And in terms of the fund exit, it was the worst day yet, with an estimated 21,000 lots sold, up from 20,000 the day before and 16,000 on Tuesday. The week's tally of sales is pegged above 60,000 contracts.

"There continues to be dramatic liquidation in the July corn contract as a large amount of longs want out of the 'long July and short December' position," Darrell Holaday at Country Futures said.

Indeed, losses in the new crop December lot were - relatively – small, at 2.3%, leaving the contract at $6.53 a bushel.

For the record, the rally spread to many other grains too, with oats, for instance, losing 3.1% to $3.56 a bushel for July – down 11% in three days.

'Slipping on Greece'

The sell-off was blamed largely on macro-economic alarm bells, triggered by weak US economic data, China's ongoing battle against inflation, and the Greek debt turmoil.

"Traders are placing big bets on the timing of the eurozone break-up," Darren Dohme at Powerline Group said, noting that Greek bonds were now paying 18% interest – rich returns for the fearless.

"Everything seems to be slipping on Greece," Jurgens Bauer at PitGuru said.

But to differing amounts. Sure other risk assets were out of favour, and the dollar made a little bit more ground, making dollar-denominated assets such as many commodities less competitive.

Yet other raw materials coped with the sell-off far better. Crude

oil

was showing small gains in late deals, while

copper

fell less than 1%. As did the overall CRB commodities index, which lost 0.6%.

Second time (un)lucky

Farm commodities would appear to be first in the firing line. And some selling certainly appeared justified, when some fundamental signs are weakening, and chart patterns are flashing sell.

"The weather premium has been pulled out of these markets," Mr Holaday said.

US Commodities said: "The US Corn Belt has non-threatening weather all the way to the 15-day forecast. The dry Mississippi Delta is expected to receive rain in the pollinating corn and double crop soybean areas."

Benson Quinn Commodities said: "Growing conditions in many key corn growing areas are close to ideal."

Furthermore, the US Senate voted again on removing tax perks for ethanol, which has been a cloud over corn, the biggest feedstock for bioethanol plants. And this time the vote went through, by 72 votes to 37.

'False sense of security'

Still, there was some idea that selling might have been overdone.

"Farmers have a long time to go and a lot of problems to deal with before we can assume the recent move is fundamentally warranted," Matthew Pierce at PitGuru said.

"Chinese demand will surface on this break so let's not kid ourselves into a false sense of security concerning the US crop.

Indeed, there has been talk of further corn purchases by China in recent days, way above the 65,000 tonnes which appeared in weekly US export sales data.

'Ethanol will run full speed'

In fact, the overall export sales data were viewed as OK, coming in at 894,000 tonnes, old crop and new, for corn, 456,000 tonnes for wheat and 177,000 tonnes for soybeans, all within the range of market expectations.

And bulls have an extra crumb of comfort in oil's resilient performance, compared with corn, restoring profitability to ethanol plants.

"Ethanol profits are very good, and ethanol will run full speed through early July with these margins locked in," Mr Holaday said.

Furthermore, Informa Economics came up with some bullish data, lowering its forecast on US corn plantings by nearly 1.3m acres to 90.6m acres, and its estimate on seedings of wheat (other than durum) by nearly 800,000 acres to 13.3m acres, thanks to the wet-delayed sowing season.

The data even temporarily revived markets when they were released.

Limit down, again

Soybeans

once again proved relatively firm, shedding a modest 1.3% to $13.50 ½ a bushel for July, in part down to the unwinding of "long corn, short soybean" spreads, but also lacking the major fund exodus.

Funds were estimated sellers of 6,000 soybean contracts.

Cotton

, however, was not so lucky, as a, rare, non-food-related farm commodity, more linked to discretionary spending, and so especially sensitive to economic concerns.

New York's July cotton lot ended down the exchange limit of 6.0 cents at 145.96 cents a pound for July delivery, with the December contract falling 5.62 cents, or 4.5%, to 120.18 cents a pound.

And this when US weekly export sales showed their first positive reading for old cotton since early March, if only a modest one of 10,100 running bales.

Winners' corner

To gain on Thursday required some special help.

Paris

wheat

had it, from a euro which sank to a record low against the Swiss franc and a three-week bottom against the dollar, making eurozone exports more competitive. It also helped that the Paris exchange closed before Chicago wheat touched its day lows.

The November contract finished up 0.3% at E216.00 a tonne.

London wheat was also relatively firm, dipping 0.9% to £173.50 a tonne for November delivery, although growing amounts of rain in the UK are reviving crop prospects.

Sugar

had a Brazilian cane crop downgrade from Datagro to support its price, besides continued talk about port delays in the South American country and second-ranked exporter Thailand too.

New York raw sugar for July closed up 3.4% at 25.92 cents a pound.

By Agrimoney.com

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