The dollar traded flat against a basket of currencies in early deals on Wednesday.
And oil was lower. Brent crude stood 1.4% down at $57.09 a barrel as of 09:40 UK time (03:40 Chicago time).
Put them together, and what do you get?
Less upbeat conditions, certainly, for agricultural commodities than in the last session, when the weaker greenback and strong oil fuelled strong gains.
OK, palm oil for April was up 1.2% at 2,173 ringgit a tonne in Kuala Lumpur.
But the market was closed yesterday (and on Monday) meaning this is the vegetable oil’s first chance to react to this week’s recovery in crude prices, which is important for palm oil given that one of its major uses is in making biodiesel.
There is in fact a report around that Indonesia may introduce a big increase in biodiesel subsidies, to 5,000 rupiah ($0.40) per litre from 1,500 rupiah, which could raise use of the biofuel to 2.8m tonnes this year from 1.7m tonnes in 2014, implying considerable extra consumption of palm oil in making it.
And the US Department of Agriculture attache in Jakarta estimated palm oil output in Indonesia, the top producing country, in 2014-15 (ending in April) at 33.0m tonnes, 500,000 tonnes below the USDA’s official forecast, citing damage to prospects from below-average rains.
“Under normal conditions, productivity will grow by 10%, to 33.5m tonnes, although the documented rainfall deficiencies may limit increases to a little as 7-8%,” the attache said.
In Chicago, there was some pressure to take profits on the gains of the last session.
Not that all idea of further headway is being dismissed.
After Tuesday indeed proved a “Turnaround” one, in the Chicago tradition of the second session of the week reversing the trend of the first (on this occasion with a bit of extra attitude), Richard Feltes at broker RJ O’Brien pulled out another market adage.
“Fund driven rallies typically persist for three days,” he said, adding that bears “may be reluctant to press the market until Friday”.
“In the meantime, stay abreast on magnitude of farm selling, trends in domestic basis and whether or not board surge triggers increased end user buying.”
And there has been plenty of evidence of wheat importers stepping up to the plate, even as prices soared in the last session.
“In the past three days, the Saudis bought 690,000 tonnes of wheat, Egypt’s Gasc bought 300,000 tonnes of wheat and Japan is tendering for 120,000 tonnes,” CHS Hedging said.
At to that tenders from South Korea’s Nofi feed group, Philippine feed producers, Bangladesh and Jordan, and Turkey for durum wheat.
And, moving on to a technical factor, wheat has a seasonal tailwind too, in tending to gain versus corn in early February, according to Moore Research.
‘Something to watch’
Still, bears still had some cards to play.
Terry Reilly at Futures International noted estimates that India’s wheat production “is still on track to exceed annual consumption, for the eighth year in a row, despite the sown area down roughly 3% from last year”, when the country produced a 95.9m-tonne crop.
“This is something to watch as the government may try to unload several thousand tons of old crop supplies on the export market to make room for new-crop,” he said.
There is also some data later to negotiate, with Statistics Canada to reveal the size of Canada’s grain stocks as of the end of 2013, expected for wheat to come in at 25.0m tonnes versus 28.68m tonnes a year before.
‘Solid argument for a reversal’
But Chicago wheat for March stood 1.5% higher at $5.21 ј a bushel for now, back above its 10-day moving average which it has, astonishingly, not closed above since before Christmas.
“Technicals are showing improvement with daily studies trying to turn higher and weeklies flattening out,” Brian Henry at Benson Quinn Commodities said.
“A solid argument for a reversal [upwards] could be made,” although “higher trade on Wednesday is needed to confirm”.
As a potential sign of the role of funds in powering the move, Kansas City-traded hard red winter wheat, which is less favoured by speculators thanks to lower liquidity, moved a more modest 0.9% higher for March to $5.64 ј a bushel.
‘Tight margin environment’
Fellow grain corn managed headway too, albeit less so, appearing to confirm the Moore seasonal trade.
Corn for March gained 0.5% to $3.87 ѕ a bushel.
The grain also faces data later in, besides the Canadian stocks statistics (which are less important for corn than wheat), the weekly US ethanol production numbers, which have been showing resilient production but also a surge in inventories to a two-year high, which might be expected to feed back into lower output.
“It should be interesting to see how ethanol plants have reacted to a tight margin environment,” Mr Henry said.
“For now the plants have been reluctant to reduce grind rates and a bounce in ethanol could provide some nearby relief.”
Soybeans, however, failed to maintain upward progress, amid harvest pressure from South America, where progress in Brazil has been unexpectedly strong, given that a late sowing season had been expected to lead to delays the other end.
Informa said that’s Brazil’s soybean harvest is 7% complete unchanged from a year ago, and above the average of 4% by now.
The Mato Grosso harvest was pegged at 10-15% completed.
The notable fall by soybeans in the last session to close below their day high, if still with near-3% gains, continued into this session when the March lot stood 0.2% lower at $9.84 ѕ a bushel.
Among soft commodities, cotton struggled too to keep up momentum, standing only 0.01 cent higher at 61.46 cents a pound in New York.
That lack of a risk-on feel was a hindrance to a crop which, as an agricultural commodity, and a rival to oil-based polyester, often tend to move in line with the macroeconomic mood, and can show periods of decent correlation with shares.
In fact, shares opened weaker in Europe, with London stocks down 0.2%.
However, two big pluses for cotton are the net short that hedge funds held in the fibre as of Tuesday last week, which they may be reluctant to extend, and the March contract’s close in the last session back above it 100-day moving average.
It had not closed above the 100-day line since May last year.
(Source – http://www.agrimoney.com/marketreport/oil-retreat-puts-brakes-on-ag-rally.-but-wheat-extends-gains–2995.html)