(Agrimoney) – It looks like going to be a big week for markets, ags included.
It will bring the Federal Reserve monetary policy meeting expected to raise US interest rates for the first time in eons.
The dollar was a touch stronger in anticipation, up 0.2% against a basket of currencies, although, at an index reading of less than 98 still well below the highs above 100 hit earlier this month which put extra pressure on commodity values.
(A strong dollar reduces the affordability to importers of dollar-denominated exports such as many commodities.)
‘Highly uncertain’
Furthermore, the week will, in Argentina, bring cuts to levies and red tape on crop exports, and a liberalisation in the peso too.
“Argentina is poised to cut grain export taxes Monday while peso devaluation hinges on securing a $7.0bn loan with Western banks,” said Richard Feltes at broker RJ O’Brien.
Given that the peso is expected to tumble when freed of its restrictions, that would appear to be a double boost to Argentine export prospects, and so a double whammy to hopes for rival exporters.
But will new president Mauricio Macri actually prove quite so eager to free the currency?
“The peso situation remains highly uncertain,” said Tobin Gorey at Commonwealth Bank of Australia.
“Macri had pledged to let the peso float as soon as he took office but now it looks as though that process could take a little longer.
“There is speculation that the new government will want to review outstanding dollar futures contracts and improve their low reserves before allowing the currency to float.”
While acknowledging that “much of this may turn out to be just market chatter”, Mr Gorey said that “if the peso is not floated and falling soon, one immediate reason to be short soybeans will fade”.
‘Moving quickly to square positions’
And that is not the only reason for investors to cover some of their short positions in soybeans, and in other grains too.
“The trade will be moving quickly to square positions ahead of the Christmas and New Year’s break,” said Benson Quinn Commodities, although of course that would mean some liquidation of longs too.
Still, with hedge funds’ net long in the top US-traded ags having fallen to just 8,242 lots last month, a historically low figure, short covering would appear likely to be well represented.
Some they did earlier
The trouble for bulls is that a part of the short-covering has already been done.
Regulatory data late on Friday showed that managed money, a proxy for speculators, rebuilt its net long position by nearly 98,000 lots in the week to last Tuesday, taking it nearly to 170,000 contracts.
And most of that move was down to closing shorts (nearly 81,000 contracts), rather than putting in new longs.
Furthermore the move was particularly strong on soybeans, with hedge funds cutting their net short by more than 23,000 lots to some 11,000 contracts.
Wheat upgrade
While investors did reinject back into futures prices some of the losses of the last session, headway was modest in early deals, with soybeans gaining 0.2% to $8.72 ½ a bushel in Chicago, for March delivery.
Wheat for March delivery added 09.2% to $4.91 ¼ a bushel, managing to overcome a small upgrade late on Friday by the Rosario grains exchange to its estimate for the Argentine harvest, by 200,000 tonnes to 9.6m tonnes, adding to the idea of ample supplies enjoyed in many countries, bar Brazil, which on Friday cut its harvest forecast to 5.6m tonnes and upped import expectations.
Still, Brazil “looks like a decent place to go with some Argentine old crop wheat”, Benson Quinn Commodities said, with North American exporters likely to lose their recent market share gains in Brazilian imports to a resurgent Argentina.
‘Another round of volatility’
Corn also showed marginal gains nudging 0.1% higher to $3.75 ¾ a bushel for March, negotiating technical factors.
“Charts appear to be building into a decent channel between support at the 200-day moving average at $3.77 ½ a bushel and resistance at the 50-day moving average, or $3.88 a bushel,” Benson Quinn said.
This week is “set-up for another round of volatility inspired by broad trends”, although likely to take inspiration from “South American news, specifically the developments in Argentina,” the broker added.
