New month, new money?
Month beginnings have a reputation for bringing fresh cash into grain markets, as funds take out fresh positions – just as month ends are seen often as spurring position closing.
And, in early deals at least, the mood was broadly resilient, at least.
This even as many other markets struggled, after further downbeat Chinese data, with an official survey of manufacturing purchasing managers indicating a sector decline last month, for the third successive month.
Shares fell by 1.7% in Shanghai and were 1.3% lower in Hong Kong, while ending in Tokyo 2.1% lower, and dropping 1.4% in Sydney too.
‘Cheap buy versus equities’
In fact, broker Benson Quinn Commodities noted “talk that the funds may see grains and soybeans trading at multi-year lows as a cheap buy versus equities”.
An easing in the dollar – encouraged by the soft Chinese data, which in turn provokes doubts over an imminent US interest rate rise – also helped.
(A weaker dollar boosts the affordability of dollar-denominated exports, including many ags, to buyers in other currencies.)
Still, gains in grain prices were modest as of 08:45 UK time (02:45 Chicago time), as investors assessed the input of other factors too.
‘Will improve moisture’
One, of course, was the weather.
In fact, there seemed no change in ideas of rains for central Brazil, improving prospects for soybean sowings, which have been somewhat delayed by dryness.
“Showers in north central and north western areas [of Brazil] will improve moisture for corn/soybean early growth,” said weather service MDA, saying showers should “favour Goias, Minas Gerais, Sao Paulo, Mato Grosso, Mato Grosso do Sul, Parana, Santa Catarina, and Rio Grande do Sul”.
Soft commodities investors will note the mention of Minas Gerais – Brazil’s top coffee-producing state, where coffee trees need continued moisture to encourage early stages of cherry development – and cane heartland Sao Paulo, where moisture may slow harvesting and so stem sugar and ethanol output.
Back to soybean sowings, and AgRural late last week reported soybean plantings in Brazil at 31% complete, behind the average of 42%, although ahead of the 29% a year ago, when seedings were also dogged by dryness.
For the US, meanwhile, “showers this week should further improve moisture for winter wheat establishment” in the Plains, MDA said.
Tobin Gorey at Commonwealth Bank of Australia said: “The question remains as to whether that will be enough to eliminate the concerns about pre-winter establishment of hard red winter crops.”
And there remain worries about the winter crop in Russia, where poor moisture has curtailed establishment, with winter arriving, bringing dormancy and the risk of winterkill for poorly developed crops if temperatures get severe.
“Temperatures have cooled enough in many areas of the Black Sea region that the recent moisture may not be of much benefit until spring,” said Benson Quinn Commodities.
‘Heavy rainfall and high wind’
And a range of weather worries is testing Australia’s crop, with dryness now not the only story in town.
After CHS on Friday flagged setbacks in Western Australia from hail and frost, rival grain handler GrainCorp on Monday noted that “heavy rainfall and high wind has been experienced across areas of eastern Australia, with mixed effect on crops.
“While the rains are welcome in some areas, it has delayed the progress of harvest in others.”
Still, perhaps a bigger question for the wheat market is what to make of the latest weekly data on hedge fund positions, as released late on Friday.
Last week’s strong performance in wheat was attributed largely to the previous week’s report, which showed hedge funds having raised their net short position at the fastest rate on record – and far more than investors had expected.
With weather worries still around, that figure fuelled a positive scramble in the market, fuelled by ideas of hedge fund covering of much their short position.
But there was confusion on exactly how much had been covered, with separate daily data on open interest, ie the number of live contracts, indicating that the overall number of lots remained roughly static.
‘Additional short covering’
In fact, Friday’s data showed that hedge funds indeed cut their net short position in wheat substantially, by some 19,000 contracts to 95,213 lots.
But it was not an unprecedented rate of short-covering by any means, and represented only a little over half as much as the increase in the net short the previous week.
And, for undecided investors, there is the improved chart picture for futures to take into account too, with last week’s rally taking December wheat back above its 100-day moving average.
“Given a slightly firmer technical structure, I would not be surprised the see additional short covering” early this week, said Benson Quinn Commodities.
December wheat in fact stood 0.1% higher at $5.22 ¼ a bushel in early deals.
Soybeans were firmer too, up 0.2% at $8.87 ½ a bushel for January delivery, amid continued talk of decent export demand for US supplies, and with wetter weather this week to slow the latter stages of the row crop harvest too.
Midwest rains “later this week will cause some harvesting delays especially in eastern areas”, said MDA.
The gain came despite a flat performance by soyoil, one of the two main soy processing products, which for December stood unchanged at 28.20 cents a pound.
Futures in rival vegetable oil palm oil fell by 0.5% to 2,352 ringgit a tonne in Kuala Lumpur, as SGS estimated Malaysian exports falling by 3.0% last month to 1.50m tonnes, although it has to be said that the rate of decline had looked like being steeper.
Corn, meanwhile, dropped by 0.3% to $3.81 ¼ a bushel for December delivery, amid continued mention of the possibility of a jump in Argentine sowings and exports of the grains, should opposition candidate Mauricio Macri win Argentina’s presidential election run-off later this month.
With Mr Macri pledging to ditch corn export taxes, “this could bring a sizable amount of corn into the export grid rather quickly,” CHS Hedging said.
“The Argentine elections could catch some attention over the course of the three weeks with the potential of adding additional corn acres and cheaper export prices,” Benson Quinn said, also reminding of concerns over a Chinese stoppage of imports of DDGs, the corn derived feed ingredient.
As an extra negative, there is further talk of a cargo of Brazilian corn heading for the US south east, in a sign of the countries relative competitiveness on export markets (at least, when the order was taken out).
(Source – http://www.agrimoney.com/feature/funds-cover-a-stack-of-short-wheat-bets.-is-there-more-to-come–410.html)