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Morning markets: crops edge lower as profit-taking kicks in

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Bears' managed in the last session to end an eight-session run in soybean prices.

Could they succeed on Thursday in breaking the resolve of corn and wheat too?

Grains certainly opened lower, as the prospect of a long weekend at a time when changes in South America's weather forecast could change ideas about the region's soybean and corn crops in an instant encouraged a dose of profit-taking.

"A couple of timely rains in the right locations have the potential for both Argentina as well as Brazil to produce record crops of both corn as well as soybeans," Benson Quinn Commodities said.

'Increasingly dry conditions'

Not that this is looking particularly likely at the moment.

The latest forecast from WxRisk.com said that "the soil moisture trend map continues to show increasingly dry conditions for the next seven days over all of south eastern Brazil, most of Paraguay and the eastern half of Argentina".

And as for temperatures, there have been some differences between weather models, with some predicting a so-called "heat dome" over the next week for Argentina, that would mean a significant threat to the welfare of pollinating corn, and others suggesting a less "heat ridge".

WxRisk.com forecast temperatures in the first half of next week topping 100 degrees Fahrenheit in many parts of the country, with Tuesday looking especially hot.

'Bullish surprise'

Mike Mawdsley at Iowa-based broker Market 1 said that "rain chances are minimal" for Argentina and dry southern Brazil, but that "obviously can change very quickly".

"Bottom line, it appears volatile price action is likely in the month ahead," with price moves only encouraged by the changing expectations for the US Department of Agriculture's January Wasde world crop supply and demand report, due on January 12.

"Some look for the January crop report, to potentially be a bullish surprise as well," Mr Mawdsley said.

Furthermore, an extra seasonal factor blipped on the radar – the early-year rebalancing of commodity index funds which involves sell-downs of better performing raw materials, and purchases of poorer performers, to get weightings back to stipulated levels.

"The trade remains wary of the impending index fund rebalance," Benson Quinn said, noting that in wheat the exercise "will likely result in that group having to buy contracts in Chicago and Kansas".

Corn vs wheat

Technically, Mr Mawdsley also noted what may prove a sea change in corn's unusual strength over wheat, which has taken it to a premium over its fellow grain for much of the year.

"The wheat/corn spread appears to have bottomed. Buy wheat, sell corn on breaks," he said.

Not that investors were following that advice as of 08:40 GMT, when Chicago wheat for March stood 0.8% lower at $6.46 a bushel at 08:45 GMT, and March corn down a more modest 0.4% at $6.40 a bushel.

Soybeans were 0.7% down at $11.89 ½ a bushel for January delivery.

A firm

dollar

did not help, with the euro particularly weak, dropping to a 10-year low against the yen.

Cotton extends recovery

Chicago's weakness helped put the dampeners on

palm oil

, which fell 1.1% to 3,151 ringgit a tonne in Kuala Lumpur, for March delivery, despite warnings of further rain in major producing areas, causing disruption.

But in New York,

cotton

for March extended the last session's rally, adding 0.9% to 91.50 cents a pound, if on small volumes.

The fibre's 4% gain in the last session was attributed to short-covering, with cotton prices seen having fallen to levels where it looked on course to be a severe loser in the forthcoming northern hemisphere battle for acres, and with lower plantings meaning weaker production prospects.

Furthermore, cotton has been a poor performer this year, making it likely to be favoured by the index fund rebalancing process.

By Agrimoney.com

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