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Morning markets: Grain markets feel chill from succession of headwinds

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Even soyoil and wheat felt the chill of selling this time.

 

There are a number of headwinds facing grain markets, of which a strengthening dollar - up a further 0.2% against a basket of currencies to a near-five-month high, so cutting the competitiveness of dollar-denominated exports - is only one.

 

There is some unease too over the collapse of Archegos Capital Management which some investors fear could be causing some ripples in commodities markets, even though the fund was apparently an equity investor.

 

“Not sure if this well lead to other issues, but when one falls there’s usually another one in the wings with problems too. Always something,” said Mike Mawdsley at First Choice Commodities.

 

“I think it is premature to say that these issues are going to be systemic. However, it isn’t premature to say that you don’t want to take on more risk based [assets] due to these issues,” said Benson Quinn Commodities.

 

“Regardless of the market, there is a lot of leverage in play.”

 

‘Adding to volatility’

Then there is the fact that it is approaching month-end, a period anyway associated with funds tidying up portfolios, closing positions and taking profits.

 

This process is potentially supercharged this time by it being quarter-end too, and by the prospect of the Good Friday holiday in the US and many other countries.

 

“It’s month-end, quarter-end, and a three-day weekend coming up,” Mr Mawdsley noted.

 

Agritel, flagging that “the end of the quarter is favourable for asset reallocations,” said that “this is adding to volatility” in grain markets.

 

There are, after all, plenty of long positions for funds to exit, and largely at a profit.

 

Managed money as of last Tuesday held 1,487,801 long contracts in futures and options in the top 13 US-traded ag contracts, within 50,000 lots of the record high set a month before, analysis of Commodity Futures Trading Commission data shows. Ie a lot of long bets potentially to close.

 

(By contrast, short positions totalled 307,603 positions.)

 

‘A lot of surprises’

And all this before getting to the big ag data event also on Wednesday, in terms of the US Department of Agriculture briefings on US grain stocks as of March 1, and on farmers’ intentions for crop plantings.

 

This is information which as Benson Quinn Commodities said “typically offers a lot of surprises”, and has a history of causing large price swings – another reason for the more cautious investor to bank profits while they are definitely still there.

 

“Row crop markets continue to lean the same way for the same reason,” the broker added.

 

 

 

That same way was, of course, negative, with corn futures for May 0.25 cents easier at $5.46 ½ a bushel as of 10:30 UK time (04:30 Chicago time), while soybeans for May shed 0.3% to $13.89 ¼ a bushel.

 

Managed funds have “continued to reduce their net long before USDA acreage and stocks report”, Steve Freed at ADM Investor Services said.

 

Soyoil for May was little help to soybeans in finding renewed weakness, shedding 0.8% to 52.53 cents a pound to reverse most of its gains of Monday (which offered some recovery after two successive limit-down sessions).

 

Palm oil showed the way in taking its turn for a pummelling, slumping by 3.6% to 3,614 ringgit a tonne for June in Kuala Lumpur, amid reported concerns about demand from top importers China and India.

 

That said, while Dalian palm oil futures for May fell, their decline was of a modest 0.4% to 7,478 yuan a tonne, with soyoil easing by 0.7% to 8,636 yuan a tonne.

 

‘Lack of any concern’

Wheat, which like soyoil proved resilient in the last session, fell back in this one, shedding 0.6% to $6.13 a bushel for May delivery, pressured by a lack of problems facing crops in major producing countries such as Russia and the US.

 

“In addition to corn trading defensive, wheat bulls are fighting lower global values, the lack of any concern related to northern hemisphere production and poor technicals,” said Benson Quinn Commodities.

 

Overnight, USDA crop progress data showed improvement in the condition of winter wheat in Kansas, the top US wheat-growing state, where the proportion of the crop rated good or excellent gained 5 points week on week to 50%, continuing to be helped by drought-easing rains.

 

Dryness does remain an issue for the northern Plains and some of Canada’s Prairies, but that is a matter for spring wheat, sowings of which have yet to begin.

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