The hedge funds heavily short in grain futures and options, it seems, have rebuffed many invitations to take profits and close up.
The latest came on Tuesday when the US unveiled winter wheat seedings data well below expectations, and at the second lowest in a century. Yet futures managed only one session of gains, which have now been completely reversed, and more.
Well, another potential cause to take profits lies ahead this weekend.
Not only is it a long weekend, with the US on holiday on Monday (for Martin Luther King Day), with the prospect of three days without being able to trade often inspiring investors to take the safe option and reduce holdings.
The weekend also comes with some weather worries, for the US.
“One concern in US weather ties to the hard red winter wheat crop,” said Terry Reilly at Country Futures.
“Hard red wheat country will see a cold surge Sunday and Monday.
“Below-zero temperatures are forecast for several pockets in Nebraska and north eastern Kansas where some areas lack snow coverage.”
World Weather sees “some potential” for crop damage, if not to excessive degrees.
At Halo Commodity Company in North Dakota, one of the states at the epicentre of the cold weather, Tregg Cronin said that the “cold snap” will keep temperatures from Saturday to Monday “in the single digits to low teens [Fahrenheit] for highs.”
The lowest temperatures should be seen on Sunday “with double-digit below-zero totals” in a belt from Montana through North Dakota, South Dakota and Minnesota to Iowa and Wisconsin.
“Wind chills should add another 5-10 degrees lower than the low, and local forecasts are talking about the potential for -40 degrees Fahrenheit with wind chill.”
Shanghai shares tumble again
Still, hedge funds were, in early deals on Friday, refusing that invitation to cover shorts too.
And it is not so difficult to see why.
For a start, the macro market picture remained disturbing, with Shanghai shares, being viewed somewhat as a barometer of Chinese fortunes, lurching lower again, this time by 3.5%.
Other Asian markets lost ground too, albeit less so.
Meanwhile, Brent crude, which on Thursday recorded its first winning session of 2016, shed 2.3% to stand at $30.17, as of 09:00 UK time (03:00 Chicago time),
‘Demand the biggest concern’
If it was some comfort to bulls, the dollar was 0.2% easier, and appears to have lost at least the will to rally for the moment, as emerging market worries raise doubts over future US interest rate rises.
(A weaker dollar makes dollar-denominated exports, such as many commodities, more affordable.)
But of course the developing world worries bring their own concerns to commodity markets.
Benson Quinn Commodities noted that for ags in general “demand will be the biggest concern moving forward with the latest economic data leaning towards a further slowdown in emerging markets”.
Well in profit
And then there is the fact that, as Halko’s Tregg Cronin said, “just because funds are short, doesn’t mean they are in a hurry to panic” and close these positions.
“One must remember, the levels they are short corn, soybeans and wheat are likely well above current levels.
“In order to incite a major short-covering event, prices will need to rally $0.30-0.40 a bushel just to put those positions under water.
“Our space will need help from crude oil and the dollar, with the former showing no signs of bottoming yet.”
‘Rejecting rally attempt’
In fact, Chicago soft red winter wheat for March shed a further 0.6% to $4.66 a bushel, while Kansas City-traded hard red winter wheatfor March was 0.4% down at $4.66 Ѕ a bushel – actually regaining its (typical) premium, for now at least.
“Wheat prices appear to be rejecting this week’s report-fuelled rally attempt, failing to break a downtrend line that stretches back to last fall,” Benson Quinn Commodities said.
(In Paris in fact, the March contract in the last session set a contract low of E165.50 a tonne.)
And with wheat lower, that made it difficult for corn to perform either, even though sentiment is a little less bearish over the grain.
“Most of the latest news has been priced in the corn market with January USDA data now firmly behind us the market will look for an improvement in demand to inspire additional shorts to cover,” said Benson Quinn Commodities.
And some recent demand data has been strong, with US weekly export sales statistics on Thursday, of 669,200 tonnes, ahead of expectations, besides the pace needed to meet the USDA target for the whole of 2015-16.
Ethanol output has been strong too, with data on Wednesday showing production of the biofuel back above 1.0m barrels a day last week, implying healthy demand for corn, the main raw material for US ethanol plants.
Still, corn for March stood 0.4% lower at $3.56 ѕ a bushel.
For soybeans, this week’s trial by slew of data has yet to end, with the Nopa industry group later to unveil estimate for the US crush last month.
The expectation is for a figure of 157.8m bushels, up from 156.1m bushels in November, but below the 165.4m bushels in December 2014.
A lowball figure would provoke ideas that the USDA has not finished the job of cutting expectations for demand for US soybeans, after on Tuesday lowering by 25m bushels to 1.69bn bushels its estimate for shipments in 2015-16.
(And this ahead of decent soybean export stats, on Thursday, of 1.3m tonnes for last week, although shipments are likely to tail-off from next month, as Brazilian supplies come on line in earnest).
For now, soybean futures for March stood down 0.7% at $8.76 ј a bushel – falling back below their 100-day moving average, which they closed above in the last session for only the third time in the last five months.
Export growth slows
Palm oil investors have already seen some data on Friday, with cargo surveyors releasing statistics on Malaysian exports of the vegetable oil so far this month.
The estimates showed a slowdown in growth, with Intertek putting exports up 4.3% so far this month, compared with 15.2% expansion as of January 11.
However, some deceleration had been expected, and was less severe in data from SGS, which said that Malaysia’s palm exports were running 5.6% ahead of last month’s as of today, compared with a rate of 7.9% as of January 11.
Palm oil futures for March rose 0.8% to 2,422 ringgit a tonne in Kuala Lumpur.
(Source – http://www.agrimoney.com/marketreport/am-markets-wheat-leads-grains-lower-despite-us-cold-fears–3458.html)