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Morning markets: SA weather fears keep grain traders on edge

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How much longer can grains' Santa rally continue? (Especially now that Mr Claus himself is back in his lair in the North Pole.)

Grains after Christmas returned to the pattern of caution in early deals that they hold before the holiday, amid talk of profit-taking, and selling by US growers who had been noted for their reluctance to get shot of crops into the falling market which reigned from early September to two weeks ago.

After all, Chicago

corn

and

wheat

have already risen for seven successive sessions, on a front contract basis, and

soybeans

for eight.

And the eurozone continues to instil some layer of concern, with the yields on 10-year Italian bonds holding above the 7% level that the market considers critical, and the region's banks depositing a record sum, above E412bn, in overnight funds with the European Central Bank

Large deposits are a signal of distrust between clearing banks over lending to each other.

'Desert-like atmosphere'

Still, weather in South America is still a big issue too, for farmers and therefore for crop traders, with the dryness fears only mounting over Christmas.

"South America corn and soybeans are still under threat from too-dry conditions in South Brazil and Argentina," Gail Martell at Martell Crop Projections said.

In southern Brazil, one of the key areas threatened (notably in Parana and Rio Grande do Sul states) "drought has worsened in South Brazil in December. It is the second month in a row of abnormally dry conditions".

In Argentina, "a desert-like atmosphere is resuming in the post-Christmas week in Buenos Aires, the top corn province".

Indeed, Dr Michael Cordonnier, the respected analyst who early this month held a relatively sanguine view of Brazil's crops, on Tuesday downgraded his estimates for Brazil's soybean production by 1.0m tonnes to 74.0m tonnes, while cutting his forecast for Argentine soybean output by 500,000 tonnes to 53.0m tonnes.

And crops in Paraguay, the third-ranked soybean exporter, look like disappointing too, with Capeco, the country's Chamber of Cereal and Oilseed Exporters, forecasting a slide in this season's harvest potentially to 6m tonnes, from 8.4m tonnes in 2010-11.

'I thought China didn't need corn?'

Little wonder that buyers seem to be taking more notice of US supplies, with export data on Monday, as measured by cargo inspections, coming in at 38.2m bushels for the week to December 22 – up 6.5m bushels week-on-week (even with Christmas approaching) and more than 4m tonnes on the same week a year before.

While corn's export sales were not so spectacular, at 39.1m bushels, down more than 6m bushels week on week, "it was also nearly 10m bushels above what is needed per week" to meet US Department of Agriculture forecasts for the full 2011-12, Jon Michalscheck at Benson Quinn Commodities said.

"The year-to-date total is now reported to be at 522m bushels plus, which would be down approximately 6% below last year's pace while the USDA is currently estimating a 13% decline.

"If the current trend stays on pace it would draw the ending stocks estimate down an additional 125m bushels."

Furthermore, a hefty chunk of US corn went to China, which has been talking down its import needs.

"Export inspections showed China taking 7.7m bushels of corn. I thought they didn't need corn?" Mike Mawdsley at broker Market 1 said.

Chart landmark

Besides, the rally of the last couple of weeks has transformed grains from a technical perspective, driving corn, soybeans and wheat over their 50-day moving averages in the last session or two.

For March corn, Tuesday's close above the 50-day line, at $6.28 a bushel, was the first since September 14.

The contract remained above that level in early deals on Wednesday, standing up 0.25 on the day at $6.33 ½ a bushel as of 08:40 GMT.

January soybeans were higher than their 50-day moving average (of $11.72 a bushel) too despite a 0.7% dip to $11.91 a bushel.

Dry Ukraine

Wheat was the strongest of Chicago's big three lots, adding 0.2% to $6.45 ¾ a bushel for March, amid continuing covering of hefty short positions, which is hardly being discouraged by the latest reports out of dryness-tested Ukraine.

The country's agriculture ministry on Tuesday said that less than 80% of winter grains (mainly wheat) had sprouted, compared with 93% a year before.

And the amount in poor condition was 34%, up from 7% a year before, leaving spring reseedings of 1.5m-2.0m hectares.

Nor does the outlook hold out too much hope of replenishing lost supplies, with Ukraine set to see rainfall "50% below normal" over the next seven days, according to weather service WxRisk.com.

Firmer rubber

Elsewhere,

palm oil

added 1.1% to 3,195 ringgit a tonne in Kuala Lumpur for March delivery, helped by the South American dryness.

Argentina is the top exporter of soyoil, the rival vegetable oil.

And, in Tokyo,

rubber

added 0.3% to 272.40 yen a kilogramme, encouraged by the firmer oil price over the past few days, taking Brent crude back above $109 a barrel.

Furthermore, the US on Tuesday provided some positive macroeconomic data in showing the Conference Board's December index of consumer confidence rising to 64.5, the highest since April and ahead of forecasts.

By Agrimoney.com

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