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Morning markets: grains revive, as faith in rally reasserted

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The storm in grain markets blew over on Wednesday, as confidence grew that the last session's sell-off had been down to technical factors and one-offs, rather than a change in the fundamental picture.

As more ideas emerged of the reasons behind the fall of nearly 3% in Chicago's July corn and wheat lots in the last session, one reason cited was that a major investor was getting ahead of the curve on the so-called "roll", in which investors swap the near-term lot for later contracts before liquidity dwindles in the run-up to expiry.

"Rumour was a large bank was rolling out of July contracts and buying deferred months, or will do so next week, thus some were preparing for it," Mike Mawdsley at Market 1 said.

The prospect of America's Memorial Day holiday on Monday plus the imminent month end, when investors often square up positions, was cited as another.

"A three-day weekend coming up and only one day in the month remaining next week has the trade escalating their liquidation ahead of the larger fund accounts who are expected to begin their roll out of their July positions' beginning June 1," Jon Michalscheck at Benson Quinn Commodities said.

Fundamentals win out

But analysts held faith that the fundamentals behind high prices remained intact.

"We expect US corn prices to remain strong over the next six months because of the existing supply tightness and worries over US corn planted area and yield," Luke Mathews at Commonwealth Bank of Australia said.

On wheat, Mr Mathews said that "despite the recent fall in prices, severe crop production concerns persist for 2011 throughout Europe and the US".

And Canada too, where the Canadian Wheat Board revealed that spring crop seedings, while faring better, were still way behind average, with 53% completed in the Prairies, compared with an average of 75% by now.

Farmers in southern Saskatchewan and Manitoba are still "struggling to get crop in the ground", the board said.

"Progress in these areas was pushed further back over the weekend by moderate to heavy rain, of 15-65mm, that brought seeding to a halt."

Prices rebound

Such thoughts encouraged a touch of bargain hunting, or more correctly, buying on weakness, which allowed both corn and wheat to recover 0.7% in Chicago for July delivery, as of 05:45 GMT (06:45 UK time).

Corn hit $7.38 a bushel, with wheat reviving to $7.85 ¼ a bushel. And, in the opposite of the last session, these contracts outperformed later lots.

Soybeans

played follower, adding 0.3% to $13.76 ¾ a bushel for July.

Chart factors

Technical factors played a role in grains' headway too, with wheat's quick rebound back over 20-day and 50-day moving averages easing jitters that a more significant chart sell pattern had set in.

The gains came despite what was an uninspiring day on outside markets, as eurozone debt fears reappeared to send Tokyo shares down 0.5%, with Shanghai stocks not far behind.

The jitters helped the

dollar

higher too, up 0.4% against a basket of currencies, and a depressant for prices of many dollar-denominated commodities, whose price competiveness falls as the greenback appreciates.

New York

crude

lost 1.0% to fall back below $99 a barrel.

'Cannot accommodate crop failures'

And this time

cotton

dropped too, following a limit-up close in New York, for December delivery, with a 0.7% fall to 124.90 cents a pound.

The last session's 5.0% rise has been down to "escalating concerns for US cotton crop production", Mr Mathews said, adding that global stocks of the fibre "cannot accommodate crop failures".

But, shifting to Tokyo,

rubber

added 1.9% to 383.00 yen a kilogramme for the benchmark October lot, despite persistent concerns that the strength in futures in the tyre ingredient may date.

Immediate supplies in Thailand, the top exporter, are "tight, due to recent rains"," Ker Chung Yang at Phillip Futures in Singapore said.

However, demand "may remain uncertain. There are some concerns that tyre and automobile production in China may slow after a series of economic cooling measures".

Rain and dry

Movement later may depend, as ever at this time of year, on prospects for US weather.

The latest forecasts keep a drier spell for northern US areas and the Midwest in early June, likely to foster speedier sowings.

One weather model "shows all of the lower Plains, the central Plains, the entire Deep South, the eastern Corn Belt into the middle Atlantic and New England states will feature much-below-normal rainfall, while the Pacific north west into the northern Rockies and south central Canada sees 150-300% of Normal rainfall," WxRisk.com said.

"This trend continues into the 11-to-15 day outlook over all of the Midwest, Deep South and central and lower Plains."

By Agrimoney.com

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