AM Markets: Corn Leads Easing in Grains, Amid Biofuels Fears

(Agrimoney) – For followers of charts, Monday brought an interesting visitor to the Chicago corn market, in the form of a so-called “doji star”.

It is a pattern which occurs when an asset closes at the same price as it began the session, and after exploring both upward and downward movement – ending up drawing on the chart a “cross”, which is the doji star.

And what it signals, is well…

“This technical pattern is usually a signal of indecision, especially after a well-established trend,” said Tregg Cronin at Halo Commodity Company.

“Buyers really aren’t sure if they want to continue pushing price in the same direction,” which for corn would have meant extending an upward trend.

‘Wall of farmer selling’

Still, corn was the one contract in Chicago in which investors appeared, relatively, decisive in early deals on Thursday, pushing the March contract lower, by 0.3% to $3.65 ¼ a bushel as of 09:00 UK time (03:00 Chicago time).

Producer selling appears to be a weight on a market which, with Argentine and Brazil weather concerns on the backburner for now, is finding upward traction less hard to come by.

“Corn seems as though it ran into a wall of farmer selling as we hit $3.70 a bushel,” Halo’s Tregg Cronin said.

“Any longs who were late to the party are going to be sweating those positions”, now futures are lower, he added.

‘Very large build in stocks’

Worries are also coming in from the US ethanol market, which has been a source of unexpectedly firm demand for corn (and sorghum, for that matter).

In fact, ethanol production remains strong, with data on Wednesday showing output last week at 1.05m barrels a day – down 3,000 barrels a day week on week, but still close to the record high.

The worry is how long that will continue, with the output not appearing to be finding much demand, with stocks last week soaring again, this time by 613,000 barrels to 21.73m barrels, their highest since May last year.

“What is more concerning is the very large build in stocks,” said CHS Hedging, saying that the “builds in stocks over the past 3 weeks sum up to an all-time record for a three week period.

“Additionally, [ethanol production] margins have fallen off a cliff and are now negative.

“Just five weeks ago margins were a very healthy $0.50 a gallon, but have dropped straight off and are now negative $0.04.”

‘Getting rid of DDGs a problem’

In part, the problem is the back-up in the US of distillers’ grains (DDGs), a byproduct of ethanol manufacture used as a high-protein animal feed, and which China, once the top importer, is buying from the US now only in small quantities, after the implantation of levies on anti-dumping grounds.

DDGs typically account for, perhaps, 20% of revenue for ethanol producers.

“Getting rid of DDGs is a problem and ethanol margins took another hit,” said Benson Quinn Commodities.

But there are also worries over use of ethanol too, after President Donald Trump ordered the Environmental Protection Agency to delay and regulations published to the Federal Register, a step seen as affecting implantation of 2017 requirements for the US biofuels mandate.

“Carl Icahn is a special advisor to Trump and a vocal opponent of some renewable fuel programmes,” Joe Lardy at CHS Hedging noted.

Trump factor

While there is some doubt that the EPA move heralds anything more sinister, with the Renewable Fuels Association terming the delay as procedural, “the market however, has reacted”, Mr Lardy said.

“The price of Rins has fallen sharply since Trump has taken office,” Rins, or renewable identification numbers, being paper credits that blenders can use rather than physical biofuel to meet consumption mandates.

“Ethanol Rins have been hit the hardest,” said Terry Reilly, underlining “speculation the latest update to the [biofuel mandate] will be upheld”.

Ethanol Rins for 2017 use “were last at $0.46 on Wednesday, down from $0.69 on Monday,” and a high of $1.035 on November 30.

“Biodiesel Rins fell to $0.92 from $1.00 as of Tuesday.”

Holiday time

With biodiesel made from vegetable oils, the soyoil market has been suffering a touch too from the fallout of mandate fears, with Chicago’s March contract shedding a further 0.2% to 34.79 cents a pound.

The contract also felt pressure from rival vegetable oil palm oil which shed 1.2% to 3,089 a tonne in Kuala Lumpur, in selling encouraged by the prospect of the week-long New York holiday, starting on Friday, in China, a major importer.

In China itself, palm oil futures eased 0.9% to 6,278 yuan a tonne for the best-traded May contract on the Dalian exchange.

‘Priced in’

Back in Chicago, soybeans themselves eased 0.2% to $10.53 ¼ a bushel for March delivery, lacking support of fresh South America weatsher fears.

“A smaller Argentine crop and weather risk has been priced into the market,” Benson Quinn Commodities said.

“Trade needs new news, evidence the crop can be smaller and/or increased US export demand for bulls to push the market its next leg higher.

“In the interim we seemed to be in entering a consolidative phase.”

Egyptian tender

Wheat for March eased by just 0.1% to $4.24 a bushel, with a couple of Russia-linked factors giving investors cause to hold of fresh selling for now.

One is, another, Egyptian wheat tender, results of which will be announced later on Thursday, and which may see Russian origin struggling a bit more to win trade, given price rises of the country’s grains instilled by a stronger rouble, which has recovered with the revival in oil markets.

Agritel said that “even if Black Sea origins look in a good position” to win Egyptian business, “traders will closely monitor to the level of Russian prices as they have shown a strong progression during last week”.

‘Cold snap’

Meanwhile, Russia is poised for more cold weather, which could test winter seedlings.

“A cold snap should arrive soon from Siberia and hit the Central district of Russia and the East of Ukraine,” Agritel said.

“The minimum temperatures of -20 degrees Celsius on a wide zone should be recorded at the start of the weekend with some local peaks at -25 degrees Celsius

That said, “a thick snow layer should limit the damage” to crops.

Data later

US export sales data later may also have a bearing on whether grain futures see a bit more volatility, with the figure for wheat for last week expected at 200,000-400,000 tonnes for this season.

For corn, the figure is expected at 700,000-1.0m tonnes, and for soybeans at 450,000-650,000 tonnes.