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Morning markets: March brings end to grain price bouyancy

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Were the bears right?

They have been "convinced that the recent run-up [in Chicago grain prices] is mainly tied to the March options expiring as well as position squaring ahead of month end and nothing else", Jon Michalscheck at Benson Quinn Commodities said.

Certainly, with both factors passed, the complex was on Thursday looking distinctly less upbeat, with

cotton

in a small minority of agricultural commodities managing gains.

New York's May contract added 0.9% to 91.23 cents a pound as of 08:45 GMT, amid persistent concerns of a sharp crop in acreage, of 10% according to some reports, in China, the top grower of the fibre as well as the main consumer and importer.

Indeed, Beijing on Thursday announced a 3% rise in its purchase price for cotton in an effort to encourage sowings, although given Chinese inflation rates, it may be early timing of the announcement, ahead of plantings, which is more significant than the amount itself.

Macro factors

For most crops, March opened with a whimper, not least because of a continued depressant on bull sentiment caused by testimony by Ben Bernanke, the head of the US central bank, which made no mention of a further round of quantitative easing, and ultra-cheap money.

And Chinese monthly manufacturing data added some caution to the macroeconomic picture.

Not because they were bad, with the official purchasing managers' index rising to 51.0 from 50.5 last month, indicating a light pick-up in activity.

But firmish data were viewed as cutting the chance for easier monetary policy in the world's second-ranked economy too.

'Be alert for sales'

Shares

eased, by 0.2% in Tokyo, 0.6% in Singapore and 1.0% in Sydney, and opened weaker in Europe too.

And the

dollar

added to gains, if only by 0.1%, but making dollar-denominated assets that much less competitive as exports.

As an extra depressant to grains, there is the prospect next Friday, March 9, of the next monthly US Department of Agriculture Wasde report, key events of the ag commodities calendar, and which have gained a habit of late of puncturing bullish fantasy.

"Lately we have been rallying into the report and then selling pressure hits," Mike Mawdsley at Market 1 said.

"We could see that same type price action again. Be alert for sales or puts by next Friday."

'Global supplies are huge'

And there are pockets of negative fundamental news too to give buyers reasons to think twice.

For

wheat

, "despite the technical support", from factors such as a huge speculative net short, positions which to close mean buying the grain, "participants remain wary that global wheat supplies are huge and the moisture profile in the northern US grain belt has improved following recent winter storms", Luke Mathews at Commonwealth Bank of Australia said.

"The better seasonal conditions should translate into an increase in US spring wheat planting this season."

Chicago wheat for March stood down 0.9% at $6.58 a bushel, with the better-traded May lot easing 0.5% to $6.65 a bushel.

Battle for dirt

For

corn

and

soybeans

, there was the temptation for investors to take a breather after a key episode in the "battle for acres" – the contest to secure area in US farmers' spring sowing plans.

February is a key month as it sets crop insurance rates, which will be a key factor in decision-making for more cautious growers.

And this year, it looks like corn farmers will get about $5.68 a bushel, to judge by the average price for the new crop December lot, and soybean growers some $12.54 a bushel.

This means a corn: soybean ratio of 2.21, compared with 2.44 last year (when corn average $6.01 a bushel, and soybeans $13.49 a bushel), ie more in corn's favour, and supporting ideas of large sowings of the grain.

Still, "we began the month with the ratio at 2.11 so the market may have done its job to have bought some acres away from corn as well as wheat, if Mother Nature will co-operate as well",, Benson Quinn's Jon Michalscheck said.

China lead

Prices for the crops in China eased too, which is significant given that both have been gaining support from ideas of demand from Chinese buyers finding US supplies cheaper than domestic ones.

"Ideas that China could enter the US or global market to import corn at any time has trade houses working overtime in an attempt to determine offering price, as well as what replacement value will be," Mr Michalscheck said.

Dalian soybeans for September fell 0.6% to 4,437 yuan a tonne and corn 0.1% to 2,411 yuan a tonne.

In Chicago, March soybeans fell 0.6% to $13.06 ¼ a bushel, potentially on course for their first decline in nine sessions. The May lot lost 0.6% to $13.12 ¼ a bushel.

Soybeans in February enjoyed their strongest month since December 2010.

March corn dropped 0.5% to $6.53 a bushel for March and by 0.6% to $6.54 a bushel for May delivery.

Data later

Still, there is always the potential for weekly export data due later to shake up the market.

Traders are braced for weaker figures on all three major Chicago crops, with wheat's seen dropping to 500,000-700,000 tonnes, from 757,000 tonnes last time.

Corn's are pegged at 650,000-850,000 tonnes, compared with the previous week's 841,000 tonnes, and soybeans are seen having a steep fall to earth from last time's China-fuelled 4.0m-tonne number, to somewhere around 400,000-800,000 tonnes.

By Agrimoney.com

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