Ags rise as China, weather boost appetite for short-covering

April 20th, 2015

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Category: Grains, Oilseeds

Wheat field and blue sky 450x299(Agrimoney) – Agricultural commodities made a firm start to the week, given some help by measures by China, a huge importer, to prop up economic growth.

The People’s Bank of China over the weekend cut sharply the level of cash commercial banks must keep with the central bank, in a move aimed at freeing up cash for lending.

ANZ said that “this clearly signals that China has entered into an aggressive monetary easing cycle, to counter the economic slowdown and the rising deflation risk.

“This surprising move suggests the authorities are frustrated by the stubbornly high real interest rates facing Chinese enterprises.”

Palm gains

With China the top importer of many ags, such as cotton, rubber and soybeans, the prospect of support for economic growth was a following wind for ag markets.

Not that all of them caught the breeze, with rubber falling 1.1% to 195.60 yen a kilogramme in Tokyo, undermined by a stronger yen, and persistent worries about a glut of supplies in Asia.

But in Kuala Lumpur, palm oil nudged 0.1% higher to 2,159 ringgit a tonne as of 09:30 UK time (03:30 Chicago time), also given support by latest data on Malaysian exports.

Cargo surveyor ITS said that Malaysian palm exports were up 9.6% month on month in the first 20 days of April, a sharp improved on the mid-month performance, when volumes were down 2.9%.

(China is the second biggest importer of palm oil too.)

Hedge fund bets

Meanwhile, in Chicago, the urge at least to think twice about selling further was enhanced by data late on Friday showing the extent of short positions that speculators have already run up (as of Tuesday last week).

The net short in futures and options the top 13 US-traded ags, from cotton to feeder cattle, jumped by 78,000 lots week on week to more than 140,000 contracts, by far the biggest on records going back to 2006.

And large net shorts (or net longs) tend to make investors wary about extending such bets, for fear of being late on the trade, and vulnerable if a profit-taking wave drives a reversal in prices.

The net short is particularly extreme in grains (counting soft wheat, hard wheat, corn, soybeans, soymeal and soyoil) at more than 215,000 contracts.

‘Look for more short covering’

Some of these shorts may already have been closed, with a steep decline in open interest in soybeans, for instance, since last Tuesday seen as drive by short-covering.

Even so, that investors should “look for more short covering” this week, said Benson Quinn Commodities.

And soybeans themselves added 0.4% to $9.75 ¾ a bushel for July delivery, and 0.4% to $9.73 a bushel for May.

‘Slow corn and soybean harvesting’

The weather was also helpful in signalling more rains to slow the progress of the Argentine harvest, supporting the need for risk premium.

“Showers this week will slow corn and soybean harvesting,” MDA said, flagging some rains to hamper harvesting in north western Brazil too.

In Brazil, the threat of another truckers’ strike is also creating some waves, although it is not seen as threatening as the last one.

A strike is “not expected to have a huge impact with soybean harvest in the country wrapping up and plenty of supplies already at ports,” said CHS Hedging, noting that truckers “are looking for changes to freight rates and the cost of diesel fuel”.

‘Cooler and wetter’

For corn, the weather risk investors are most looking at is that to the US Midwest, and any threat it might pose to plantings, which have had a bit of a slow start thanks to excess rains.

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