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Evening markets: wheat wins grains battle, as corn crumbles

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Remember the days when corn had a premium over wheat?

They were looking a distant memory on Friday as

wheat

finished its best week in Chicago since July on an upbeat note, surfing a market mood supported by data showing the US unemployment rate falling to two-year low of 8.6%, and further signs of action in tackling the eurozone crisis.

Angela Merkel, the German chancellor, backed the fiscal union between eurozone countries seen by many as necessary to ensure the survival of the currency.

Corn

, however, stayed in a grump, still depressed by Thursday's US weekly export sales data which, while not the worst of late, appears to have been something of a last straw.

'Export market is dead'

"Export sales are poor. We need a large buyer to step up to the plate," Paul Georgy at Allendale said.

The data "reflected weak demand for US corn", Sudakshina Unnikrishnan at Barclays Capital said.

At Country Futures, Darrell Holaday said: "The reason the corn market is sick is that the export market is dead."

It has been poisoned by a strong cash market in the US interior which is requiring huge premiums to get crops to ports, and leaving offers at about $6.80-6.85 bushel, "compared to about $6.00 a bushel at this time a year ago", Mr Holaday said.

Mr Georgy put it differently: "Why would they be looking for US corn when current values are approximately $10 a tonne over South America corn, and $9 over US soft red winter wheat?"

'Feed wheat for corn'

In fact, the premium of US corn over Ukraine supplies is even greater, at $13-25 a tonne, according to the US Grains Council - a price gap which was tempting buyers to switch to the Black Sea exporter despite an alleged quality penalty.

"Despite quality concerns – crude protein levels as low as 6.7% and foreign material as high as 14% - some buyers are showing interest because of the lower price," said the council's office Taiwan, where the "first cargo of Ukrainian corn will reportedly arrive in the first half of December".

And even in the US, there is some switching of feed wheat for corn going on among livestock producers, notably broiler ones.

"We continue to hear of some substitution of feed wheat for corn in areas where the basis allows for this," a report from Paragon Economics and Steiner Consulting said.

China upgrade

Furthermore, there was China's huge estimate for its corn harvest, of 191.75m tonnes, to put into the recipe, if with the pinch of usually taken with Beijing crop estimates.

The result was a fall of 1.0% to $5.95 ¼ a bushel in March corn.

March wheat, meanwhile, soared 1.8% to $6.25 ½ a bushel, a strong performance even when judged against other, non-agricultural commodities, with the complex as a whole showing only a small gain.

One problem for dollar-denominated assets was a rise in the

dollar

, of 0.4%, making them less competitive as exports.

While the greenback typically falls back on a better macro-economic mood, traders sold off the euro on Friday regardless of Ms Merkel's comments, taking profits ahead of the weekend, after five days of gains.

'Failing to compete'

However, wheat had some support not just from the huge number of short positions in the grain, which has reached a level encouraging speculators to quit before everyone else does and sends the price spiking, but also from some fundamental news.

Australia continues to be too wet to avoid grain quality downgrades, while Ukraine is so dry that the prospects of a poor crop next year have prompted farmers to start withholding sales, cutting the country's export prospects.

At least, according to senior Ukraine farm ministry official Oleksander Demidov, although he did get some support from UK grain traders at a major European commodities house, who noted that "growers in both Russia and the Ukraine are keeping away from the market in the hope of better prices in the new year".

This means that even Black Sea values are "failing to compete" - with ones in South America, the current wheat discount house, that is.

Quality counts

Kansas higher-protein hard red winter wheat did modestly better than Chicago's soft red winter variety, lifted by the quality concerns, closing up 1.9% at $6.81 ½ a bushel.

And the falling euro helped Paris milling wheat keep its end up too, adding 1.6% to E178.50 a tonne for the best-traded March contract.

London feed wheat for May, denied the quality prop, failed to keep up, closing unchanged at £145.15 a tonne.

'Dry Brazil'

Back in Chicago,

soybeans

gained 0.7% to $11.35 ¾ a bushel for January, helped by forecasts of dry South American weather, over which traders are particularly sensitive in this, a La Nina period.

"Forecasts for South America offer a drier trend for much of this region for the next couple of weeks," Benson Quinn Commodities said.

Matthew Pierce, the GrainAnalyst trader, noted forecasts that central Brazil is going to be "dry, with no real precipitation expected for the next week".

(That said, Allendale's Paul Georgy said: "South American weather is ideal for the foreseeable future. Our weather man does not see any major crop stress at this time.")

Cheap cocoa

Among soft commodities,

cotton

sided with soybeans and wheat, adding 0.6% to 91.84 cents a pound for March delivery, helped by a forecast from the International Cotton Advisory Committee of asignificant fall in world sowings for 2012-13.

But

cocoa

kept up its downward lurch, closing down 2.6% at $2,228 a tonne in New York for March delivery, the lowest finish for a second-in contract since March 2009.

London March cocoa ended down 1.8% at a three-year low of £1,435 a tonne.

Data showing bean arrivals at ports in Ivory Coast, the top producing country, so far in 2011-12 reaching nearly 369,000 tonnes, a 6.0% rise year on year, issued a reminder of the rich supplies expected this year.

Worst prospects for 2012

?

And New York

coffee

tumbled 2.6% to 227.15 cents a pound for March, depressed by a further rise in certified stocks, to approaching 1.47m bags, after a 15.5% rise in such inventories last month.

A rise in certified stocks signals extra supplies, and weaker price prospects.

Coffee was also named too as worst bet for 2012 among farm commodities by Rabobank.

By Agrimoney.com

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