Is there change in the air on financial markets?
Equities certainly struggled in Asia, after New York stocks overnight appeared to be running into thin air, with Wall Street’s main indices again proving unable to hold on to early gains. The S&P 500 closed down 0.4%.
Hong Kong stocks dropped more than 2%, to a two-month low, with Seoul shares dropping 1.5%.
In grains, a development in the market mood was evident in data overnight on open interest (ie on the number of live contracts).
For Chicago wheat futures, open interest rose in the last session for the first time in more than two weeks, on November 17, and that was by a measly 133 lots.
(For corn, a rise in open interest of 5,431 contacts was the first in nine sessions.)
And for soybean futures, open interest soared by 22,855 contracts – the biggest in months.
For grains, the change in tack in part reflects the passing of peak fuss over the expiry process for December contracts, a time when many investors sell-up rather than be left with obligations over physical crop, and leading typically to a decline in open interest.
However, there is more than that going on too – especially in soybeans, of course, which have no December contract expiring in Chicago.
The moves, factoring in recent price moves too, would appear to indicate the enthusiasm for taking long bets on soybeans, with Argentina dry and La Nina threatening to see that trend continue, with some investors balancing this against a short bet in wheat.
And there appeared to be more of that going on on Wednesday, when January soybean futures added 0.3% to $10.11 ¾ a bushel as of 09:00 UK time (03:00 Chicago time), albeit not yet touching the four-month high of $10.15 a bushel reached in the last session.
“Rains are expected to hit Argentina later in the week, but total precipitation will be minimal as showers will be mostly scattered,” CHS Hedging said.
“Traders continue to talk net drying conditions that could lower the expected yield of Argentina’s soybean crop.”
‘Worries have intensified’
Benson Quinn Commodities said that in Argentina, “current conditions are poor, little rain is expected through December 20, and the temperatures are warming.
“Meanwhile, the European weather model also pointed to a drier-than-normal weather pattern continuing in these areas into the spring.”
At Commonwealth Bank of Australia, Tobin Gorey said that “the market’s worries about crops in Argentina have intensified.
“Weather forecasters still expect hot and dry conditions to persist into mid-December.”
Indeed, there appeared unusual consensus, for once, about conditions.
‘Short trade getting crowded’
Wheat futures for March, meanwhile, eased 0.4% to $4.31 a bushel.
They were little helped by factors such as Monday’s upgrade by Ikar to 35.3m tonnes in its forecast for Russia’s wheat exports in 2016-17, with Benson Quinn Commodities noting that “trade is closer to 33.5m-34m tonnes”.
However, the broker also flagged that “as if wheat wasn’t having a tough enough time, it feels like buyers of corn and beans are quick to short the wheat market”.
Whether going short in wheat at depressed levels is wise…
The broker added: “I am not convinced I want to be long wheat here, but I don’t want to be short.
“I think the short trade is quickly getting crowded.”
Still, CBA’s Tobin Gorey sounded a more downbeat note, saying that the contract was “still a little above season lows”, a bit.
“We remain sceptical that can persist while US wheat exports are so modest.”
Direction later in the day may depend on Statistics Canada data on Canadian crop production, which are expected to show the country’s wheat harvest at 28.0m tonnes, above the 27.13m tonnes estimated in September from model-based analysis.
A survey-based estimate in August put the crop at 25.5m tonnes.
‘Supplies are seen dwindling’
Chicago corn futures, meanwhile, added 0.3% to $3.54 ¾ a bushel for March, favoured by Argentine weather worries, but also by concerns over supplies in China, where the harvest is believed by many investors to have come in at a disappointing level.
Certainly, that is one common theory behind the rise in corn futures on China’s Dalian exchange, where the best-traded May contract closed up 0.5% overnight at 1,784 yuan a tonne, its best finish in five months.
“Chinese corn futures have been trending higher as supplies are seen dwindling due to low yielding corn in the northern growing region,” CHS Hedging said.
“Both refineries and feed mills have been buying up corn stocks in anticipation for a larger deficit.”
Ideas of a China shortfall of feed grains were only enhanced by a purchase or 162,000 tonnes of US sorghum, announced on Tuesday.