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Morning markets: triple barrage prevents crop losses holding

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Chicago looked like it was attempting one of its "Turnaround Tuesdays" in early deals, but with mixed success.

Traders in the Windy City have an adage that crops often on Tuesdays reverse a strong trend in the previous session, which this time would spell losses for the likes of corn, soybeans and wheat.

But that was more difficult this time, thanks to interference from at least three key market influences.

'Forecast pretty much set'

The first was the Argentine dryness, where some crops are receiving much-needed thunderstorms, but with less generosity on the moisture front than was hoped for last week.

"The forecast is pretty much set," David Tolleris at US-based weather service WxRisk.com said.

"This rain will be something like 60% coverage of 0.25-2.00 inches, mainly over La Pampa, Buenos Aires, far southern Santa Fe and western and southern Cordoba, then into north west Argentina."

Northern Cordoba province and Santa Fe, eastern Chaco and Formosa and all of Entre Rios province "miss the rains and may be 90-100% dry", he added.

And after this front, "Argentina stays dry through January 23-24".

'Speculator wants to carry length'

The second was the US Department of Agriculture's first flagship Wasde crop report , due on Thursday, which is expected to bring downgrades to forecasts for South American

corn

and

soybean

crops, and some trimming to US production estimates for 2011 too.

"The [US] corn demand used for feed is also a number to be watching as many analysts wonder if USDA had underestimated the number in the 2011-12 season," Lynette Tan at Singapore-based Phillip Futures said.

Brian Henry at Benson Quinn Commodities said that "despite the recent rally, it appears the corn speculator wants to carry length into the report".

Chinese hopes

Then there was China, which regained a higher profile on financial markets, after data showed its trade surplus falling last year to $155bn, the lowest since 2005, and viewed as an indication of the country's increasing domestic demand, and slowing growth in foreign orders.

On the face of it, the data was poor for crops, showing a 3.9% slip in soybean imports to 52.64m tonnes last year – the first decline since 2004.

December imports by the top buyer of the oilseed fell 4.9% month on month to 5.70m tonnes.

However, this was seen to have been largely factored in to soybean prices, and markets seemed more fixated on the idea that the lower trade surplus signalled a more balanced Chinese economy, and potentially paved the way for easier monetary policy.

That could mean higher appetite for raw materials from a major importer of

cotton

,

palm oil

and, now corn, too, besides industrial metals and energy.

Shanghai stocks added 2.7%, taking their gains this week above 6% and helping shares elsewhere too. Shares closed up 0.4% in Tokyo, 1.5% in Seoul and 1.1% in Sydney.

Price moves

Put this into the mix, and the answer was a recovery from early losses. Soybeans for March added 0.25 cents to $12.33 ¼ a bushel as of 08:40 GMT, while March corn added 0.6% to $6.55 ¾ a bushel.

Wheat

, meanwhile, which is already in the barn in Argentina, and not affected by heat fears, stood unchanged at $6.41 ¾ a bushel for March.

More pertinent for wheat are the fears for the impact of dryness in Ukraine on autumn-sown grains, and in northern North America sapping moisture needed for spring plantings. (OK, it is still early days in that department.)

'May take a beating'

Furthermore, there are two technical factors in play, the first being the annual fund rebalancing exercise, in which they adjust crop weightings to mandated levels.

This means selling 2011'stop performers, rendered overweight by their gains, and buying laggards, such as Chicago wheat.

Furthermore, there has been spreading, with traders unwinding "long Minneapolis [hard red spring wheat], short Chicago [soft red winter wheat]" bets, a play on fears for a world shortage of quality wheat, which seem to have subsided for now.

Then there are the "short corn, long wheat" bets placed in expectation that Chicago wheat will resume its historic premium over corn, lost thanks to a shortage of the latter.

"However, as we have seen in the past year, the traditional relationship of wheat trading at a premium to corn may be a turning tide," Phillip Futures' Ms Tan said.

"Upside for wheat could be short-lived when spillover effect from the corn rally sizzles out, leaving wheat to grapple with its weak fundamentals. [With] ample global supplies… wheat prices may take a beating in the next few months."

Cotton continues upward

Elsewhere, New York cotton, which closed the last session at its highest since mid-November, edged up a further 0.01 cents to 96.45 cents a pound, with fund rebalancing seen helping prices here too.

Cotton was a dismal performer over 2011 as a whole, over which it shed 37%.

In Kuala Lumpur, palm oil added 0.1% to 3,218 ringgit a tonne. Official data showed Malaysian stocks of the vegetable oil falling to a four-month low, but this had been expected by investors.

By Agrimoney.com

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