(Agrimoney) – One of the cliffhangers for ag investors left over from the last session was what would happen to corn futures, now that their chart credentials have been badly tainted.
As Agrimoney.com described 24 hours ago, the March futures, hemmed in to the upside by their 10-day moving average and to the downside by their 100-day moving average, faced a technical crossroads – with the direction of their breakout potentially setting a trend.
As analysts had suggested, the breakout turned out to be to lower, through the 100-day moving average at $3.78 a bushel, and a couple of other nearby support points.
“The March corn close of $3.73 ¼ a bushel was below support and a fraction off the session low and the lowest close since October 2014,” CHS Hedging noted.
Will this prove a trigger for more selling, and see corn face the same kind of selling that fellow grain wheat has suffered, falling to a four-year low this week for Kansas City hard red winter wheat?
‘Weakness may continue’
“As we have been discussing, the 100-day moving average was a technical level to watch and we have settled below it on heavy selling into the close,” one US broker said, attributing the pressure to funds “who have been holding very large net long positions”.
Speculators held a net long in Chicago corn futures and options of nearly 200,000 contracts as of Tuesday last week, down from the 240,000-plus contracts as of Christmas time, but amongst the higher levels of the past couple of years.
“Settling below the 100-day moving average can get the technical funds to start selling and this [price] weakness may continue.”
At Benson Quinn Commodities, Brian Henry said: “The next significant support level looks to be around the $3.60-a-bushel level.
“I expect the trend lower to continue with a few minor short covering rallies. Fundamentals don’t support a rally and technicals have broken nearby support.”
Data later
Indeed, as of 09:15 UK time (03:15 Chicago time), March corn was 0.6% lower at a three-month low of $3.71 a bushel.
Still, the day is yet young, and while the later session could see pressure as fund selling kicks in in earnest, it will also bring US export sales data, expected to come in at 850,000-1.2m tonnes, but for which a bigger figure would likely offer price support.
Last time, sales reached 2.19m tonnes.
On the supply side, the market is sensitive to prospects for the Brazilian safrinha corn sowings, currently in progress, besides the outlook for spring plantings in the US.
At Futures International, Terry Reilly said that an “argument for lower 2015 US corn acreage was conveyed from a report that US producers are demanding larger programme loans for the upcoming season”.
The US Federal Reserve has revealed a “significant” rise in loans to farmers for operational purposes, rather than buying land.
Soyoil’s slump
Another cliffhanger was in the soyoil market, and how much selling pressure is left unspent after futures tumbled in the last session on news that US regulators have backed allowing Argentine biodiesel makers to quality for US biofuel credits.
Soyoil futures for March stood 0.6% lower at 30.15 cents a pound, although failing yet to test the near-six-year low of 30.05 cents a pound reached in the last session.
In fact, while some observers have warned of a surge in US imports of biodiesel, made from vegetable oils such as soyoil, other have taken a less bearish view, pointing out, for instance, that Argentine biodiesel would still need to meet cross environmental hurdles to qualify.
“Many traders don’t think Argentina will send many boats of biodiesel to the US anytime soon,” Futures International’s Terry Reilly said, highlighting “US red tape”.
‘High expectations’
Indeed, it was notable that Wednesday’s decision did not alter prices of the biofuel credits, called Rins, themselves, which for 2015 eased to $0.90-0.98 from $0.99-1.01, and for 2014 fell to $0.75 from $0.77-0.79.
“In perspective, 2014 biodiesel credits were trading between $0.59-0.60 at the end of November 2014,” Mr Reilly said.
In fact, soybeans themselves eased only 0.1% to $9.69 ¼ a bushel for March, given some support from soymeal, which added 0.1% to $337.60 a short ton for March delivery, boosted by hopes for the US export sales data.
“There are high expectations for soymeal sales to be a marketing year high, with estimates ranging from 150,000-350,000 tonnes as lower prices last week attracted new demand,” Benson Quinn Commodities said.
US vs South America
Actually, the current high for 2014-15 for soymeal exports was released a week ago, at 284,501 tonnes.
While the onset of the South American soybean harvest will mean extra supplies, these will not kick in yet.
“Cash Brazil soybean meal premiums naturally erode during the March/April period, onward,” Mr Reilly said.
“The US should see a relatively very strong crush until South American soymeal exports start to severally undercut US demand,” with the US soybean crush likely to “remain near record levels through the middle of March”.
Saudi tender
As for wheat, one question for this market is when lower prices, now down one-quarter from a December 18 high, will lure out buyers.
Saudi Arabia on Thursday said it was seeing 660,000 tonnes of the grain at tender.
This actually didn’t pull wheat futures out of their downswing, with Chicago’s March contract down 0.7% to $5.01 ¾ a bushel, as funds extend their switch from a net long in the grain to the net short with which they have, historically, been more comfortable.
Still, there is more talk among analysts of the worst for price falls being over for now.
Key price level
“The market is quite technically oversold and is due for a bounce,” CHS Hedging said, noting “some end-user pricing seen” on Wednesday.
Furthermore, the “recent price erosion has caused a lot of talk about new crop spring wheat acre potential, and how the lower price move may eliminate the incentive to keep winter wheat acres that show signs of winterkill”, the broker added.
Whether these comments find traction in trading patterns may be determined on whether wheat futures find some backbone at a key technical level.
“Chicago wheat has a shot to catch support at $5.00 a bushel,” Benson Quinn Commodities’ Brian Henry said.
“I wouldn’t sell it, but don’t want to own it. I would cover some shorts.”
‘Impressive recovery’
Among soft commodities, March cotton futures, just about, extended their recovery in New York from last week’s five-year low of 57.05 cents a pound.
Indeed, Tobin Gorey at Commonwealth Bank of Australia said that futures had staged an “impressive” bounce “that will, for some of the technically-minded at least, arrest downward momentum”.
The contract stood 0.01 cent higher at 59.45 cents a pound in early deals, a small rise, but enough to secure the lot its 20-day moving average.
US weekly export sales data for cotton have had a habit of coming in strong of late, beating market expectations.
