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Evening markets: Grain futures rebound, amid ideas further rationing needed


As has been their habit of late, grain markets’ early-morning behaviour bore little relation to that exhibited in the afternoon.


After proving somewhat sluggish in early deals, the main contracts got into their stride as the session went on to close with decent gains.


Prices gain

The Bcom ag subindex stood up 1.5% in late deals (albeit recovering a little less than half its losses of the last session) to stand back above its 20-day moving average.


Chicago corn futures for March, which had early on fall by 1.6% to surrender the $5.00-a-bushel mark (and some), recovered to close at $5.11 ½ a bushel.


That was a gain of 2.2% for the session, over which it travelled by a hefty $0.23 a bushel from trough to peak.


Soybean futures for March, which earlier dropped 1.0% to stand below $13.00 a bushel, revived to end at $13.43 ½ a bushel, a gain of 2.4% on the day.


And Chicago soft red winter wheat for March recovered from an intraday low of $6.24 ¼ a bushel, down 1.7% on the day, to settle at $6.48 ½ a bushel, up 2.2,% and narrowly retaking the 20-day moving average surrendered in the last session’s tumble.


‘Day traders’

The headway was attributed to a mix of fundamental and technical factors.


On the technical side, Richard Feltes at RJ O’Brien said that he suspected the “bounce today was driven in part by Friday’s day traders that shorted the board” – ie by closing of fresh (but profitable) short bets.


Other observers cited factors such as the data showing that hedge funds had already cleared out a significant chunk of their net long position in grains, corn especially, as of last Tuesday – meaning less of an overhang of positions yet to sell than had been thought.


(Was this position closing spurred by the prospect of increased margin calls?)


Furthermore, there were the chart dynamics, as contracts failed, for now at least, to uncover selling at key points (eg when soybeans fell briefly below $13.00 a bushel), and with ideas that producer hedging had dried up at these lower levels.


Algeria back in for wheat

However, there was some upbeat fundamental news too – albeit not in the form of a further announcement by the US Department of Agriculture of large sales of US ags, after sizeable orders were revealed on both Thursday and Friday.


Ukraine, for instance, announced that it is to restrict corn exports this season to 24m tonnes, to protect domestic supplies, although it has to be said that shipments were only expected to reach about that level anyway.


Meanwhile, there was talk of bargain hunting (or at least purchasing at a discount to last week’s highs) as well.


Taiwan tendered for 85,000 tonnes of US wheat, and signally Algeria entered the wheat market again, after buying a reported 390,000 tonnes of the grain last week, and a further 300,000 tonnes on new year’s eve.


And there was talk too that strike action in Argentina called by truckers had badly hit export activity at the ports of Bahia Blanca and Necochea, and less so at the key port of Rosario.


‘Bullish fundamentals’

This anyway against a backdrop of tight supplies which should suggest higher prices, rather than lower, until there is more evidence of rationing kicking in, many commentators have said, as Agrimoney noted earlier.


“Bullish fundamentals are still intact,” said Benson Quinn Commodities.


ABN Amro, citing in particular strong Chinese demand, joined the likes of Rabobank in forecasting higher grain prices ahead.


Not, it has to be said, that all the news was bullish, with weather remaining much improved, if not perfect, in South America.


In Brazil, “rain this week is expected to favour southern and western growing areas in Brazil, with the heaviest amounts expected in far southern Brazil, which should significantly improve soil moisture for crops in Rio Grande do Sul,” said Maxar.


Still, “dry weather will continue across northeastern growing areas in Brazil, which will stress any late crop growth”.


In Argentina, “showers are expected in northern growing areas tomorrow and central areas later this week” although “dry weather will continue in southern growing areas this week”.


China driver

Buying flipped over to cotton too, which gained 0.9% to 82.33 cents a pound in New York for March delivery, returning close to last week’s two-year closing high for a spot contract.


“China continues to be one of the main drivers behind this rally,” said Plexus Cotton, noting the relatively high prices of the fibre on the Zhengzhou exchange, where the May lot closed on Monday at 15,100 yuan a tonne, equivalent to 106 cents a pound on Agrimoney calculations.


Furthermore, “China imported 1.6m statistical bales of raw cotton in December, which was the highest monthly amount since 2013, and China continues to absorb a lot of cotton yarn from the Indian subcontinent as well”.


Sugar range

However, New York raw sugar for March eased by 0.8% to 15.74 cents a pound, closing below its 20-day moving average for the first time in a month.


Marex Spectron said it looked like prices were trading in a range between 14.00 cents a pound - a level below which “Centre South Brazilian mills would start making less sugar”, and turn more cane into ethanol instead – and 16.50 cents a pound as the ceiling.


“For the top of the range, 16.50 is (today) the level at which Chinese imports would lose their profitability against the current forward Chinese domestic price,” Marex Spectron’s Robin Shaw said.

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