Are slightly revived grain prices already doing their work?
Richard Feltes, at broker RJ O’Brien, said that the strength in values in the last session was fuelled, at least in soybeans, by the “need to step up farmer selling to processors unable to replace crush” in the US.
In rival Argentina, for example, the top exporter of soy processing products soyoil and soymeal, he noted “continued tight farmer soybean holding on inflation fears”, which make it worthwhile holding onto assets denominated in dollars.
And there are the “reports of increasing South American biodiesel mandates” speaking of increased local demand ahead, so also rewarding hoarding. (Biodiesel is made from vegetable oils such as soyoil.)
Gains in futures, meanwhile, had been magnified by the enthusiasm to cover short positions, after data late last week showed hedge funds holding a near-record net short in US-traded ags overall.
Overall, the last session’s upbeat note represented “a fresh attempt to attract row crops into commercial/end user pipeline—an exercise that will be accomplished readily, leaving [futures] vulnerable to renewed selling”, Mr Feltes said.
And, indeed, futures eased back on Wednesday, with March soybeans, for instance, down 0.2% in Chicago at $4.90 Ѕ a bushel as of 08:30 UK time (02:30 Chicago time).
‘Pretty close to ideal’
There were some other bearish pressures to factor in too, with CHS Hedging noting that “the weather in Argentina has been pretty close to ideal lately” for the corn and soybean crops in the ground.
“Brazil is seeing some dry weather and allowing for harvest to progress.”
Benson Quinn Commodities said that “the failure of crude to hold early gains on Tuesday could weigh on prices moving forward”, with many crops linked to energy markets via used in making biofuels.
And oil futures eased a little more on Wednesday, by 0.5% to $32.03 a barrel for Brent crude.
That was hardly helpful for soyoil values, which dropped by 0.2% to 31.56 cents a pound for March delivery, still feeling pressure too from industry data on the US crush which showed stocks of the vegetable oil as of the end of last month at 1.526bn pounds, 14m pounds above market expectations.
Furthermore, Egypt is representing a thorn in the side not just forwheat markets but soybeans too, now reflecting four 30,000-tonne cargos of US soybeans on quality concerns.
“We are starting to think the country may be having a hard time securing money,” said Terry Reilly at Futures International, an idea only gaining ground after Egypt rejected another load of wheat too on claims of ergot contamination.
Agritel said that the country has “now rejected a Canadian wheat boat for the same reasons of fungus ergot presence” that meant a French cargo was refused entry last month, and is now being resold.
“This is adding to the confusion and demonstrates how tough the export market is by now.”
Benson Quinn Commodities, saying the trade is “lacking confidence in Egypt as trade partner, regardless of rhetoric”, added that “If they need to buy wheat, they need to give the trade more consistency in the terms”.
US vs Paris wheat prices
And the worries over Egypt are having a particular impact on wheat values in Europe and the former Soviet Union, default origins of the grain for the world’s largest importing country.
“It seems EU and Black Sea wheat prices are feeling the absence of Egypt from the market,” said Tobin Gorey at Commonwealth Bank of Australia.
“With US and EU prices moving in opposite directions the EU premium has fallen back to $5 a tonne in the futures.”
Certainly, investors through twice about further cutting that premium, with Chicago wheat for March down 0.2% at $4.63 ј a bushel for March, and Kansas City hard red winter wheat for March down 0.4% at $4.49 a bushel.
Nor could corn manage gains, with its fellow crops dropping, and crude oil too – a key market for a crop used largely in making bioethanol.
“The fact that outside markets have been a major source of inspiration for grains should be cause for concern when rallies fail to confirm,” said Benson Quinn Commodities.
Corn for March was 0.2% down at $3.62 ј a bushel.
(Source – http://www.agrimoney.com/marketreport/am-markets-fears-for-egypt-farmer-selling-stymie-ag-rally–3504.html)