(Agrimoney) – Corn hasn’t, for much of the decade, been a strong investment. Prices of Chicago futures dropped again in 2016, in a decline which while small, at less than 2%, was significant.
That was the contract’s “fourth yearly straight loss, its worst losing streak since 1960”, said Terry Reilly at Chicago broker Futures International.
Still, Chicago futures started 2017 directed at breaking that losing spree, with the spot March contract making gains, if small ones, and outperforming peer soybeans.
‘Wetness concerns persist’
Three main factors appeared to be in its favour, the first South American weather setbacks, with heavy rains setting back sowing of the last of the Argentine corn crop.
Commodity Weather Group said that “wetness concerns persist in central Argentina corn soybean” areas, which received an additional 1.25-2.5 inches over the weekend
Parts of Buenos Aires, Cordoba and Santa Fe provinces growing some 25% of Argentine corn and soybeans have received 9-11 inches of rain in two weeks, with areas responsible for a further 25% or so receiving 5-8 inches.
And, with more rains due, the moisture looks likely to “hinder late seeding, notably for 5% of Argentine soybeans and 10% of corn, in additional to [hampering] any replanting efforts necessary”, CWG said.
Rebalancing act
This invitation to add a bit of risk premium into corn prices comes at a time when index funds are already seen as poised to go on a bit of a buying spree in corn, in the annual, rebalancing process this month.
This sees them rework the weightings of the commodities in their portfolios back to the levels dictated by the index followed.
“The index fund rebalancing starting January 9 reportedly will trigger 60,000-100,000 new corn longs and 30,000-50,000 new wheat longs,” said Richard Feltes at broker RJ O’Brien.
‘Look for firmer markets’
This sets up the possibility for an interesting confrontation with hedge funds and other speculators, which have been increasing their net short in corn.
In fact, in the latest week, they raised their net shot by 16,500 contracts, more than investors had expected and, if the resulting total net short of 113,648 lots is seen as overcooked, raising the potential for a short-covering wave.
“Look for firmer markets [overnight] in the wake of a larger-than-expected managed fund corn short and confirmation of wet Argentine weather that will delay final row crop seeding,” Mr Feltes said.
That assessment worked for grain futures, with Chicago’s March corn contract standing 0.4% higher at $3.53 ¼ a bushel as of 08:50 UK time (02:50 Chicago time).
‘Evolution of temperatures must be monitored’
And Chicago wheat futures were March were higher too, up 0.3% at $4.09 ¼ a bushel, staying narrowly ahead of their 10-day moving average, as well as the 20-day.
Argentine rains are not so helpful for the country’s wheat harvest either, although most of it has been done, with 85% completed as of last Thursday, according to the Buenos Aires grains exchange.
Furthermore, there is a watch on cold temperatures sweeping many winter wheat growing areas.
“The current cold snap is not raising any particular fears in Western Europe but the evolution of temperatures must be monitored in the US and Black Sea area in coming days,” said Agritel.
‘Winter price support’
Futures International’s Terry Reilly said that “a surge of bitter cold air will begin to push southward from Canada and the northern Plains.
“The cold snap will reach Colorado and Nebraska, where more snow is needed to protect the winter wheat crop from single digits.”
Indeed, dryness has been a bit of an issue too, albeit not so important for crop development directly while winter crops are in hibernation.
According to the US Department of Agriculture, 30.7% of Kansas, the top wheat-producing state, is in drought, along with 37% of Colorado and 72% of Oklahoma, with the Nebraska reading lower, at 13.4%.
Water Street Solutions said: “Dryness in the Plains and cold winter weather coupled with another expected drop in [US] winter wheat acreage could provide some winter price support.”
Brazilian harvest
It was soybeans which let ag bulls down in early deals, trading 0.1% lower to $10.02 ¾ a bushel for March delivery, confirming their position below their 200-day moving average.
Soybean futures can feel pressure early in the calendar year from the ramping up of the South American harvest, and the supplies that brings to export markets.
And early results from Brazil have been promising – although with the potential for interruption from rain.
CWG forecast the return of rains to the Centre South and Centre West Brazil, although the north east (where harvest has not begun, and where a lack of moisture has been a concern) will remain dry.
‘Expect consolidation’
Water Street Solutions advised investors to “expect consolidation until the market can get a better handle on South America the next few weeks”.
An exacerbation of worries “should send soy toward $11.00 a bushel, while the moderation of weather would have the market looking back toward the $9.50-a-bushel area in the March contract”.
An extra factor for the market to absorb was Argentina’s announcement on Monday that it will cut soybean export taxes, after u-turning in 2016 on plans for a 5-point cut from the current rate of 30%.
However, the reductions will be staged, with plans to cut the levy by 0.5 percentage points every month in 2018 and 2019, leaving it at 12% in 2020.
The decline in soybean futures defied a firm start for soyoil, which added 0.7% to 34.90 cents a pound in Chicago, helped by a 1.9% jump to 3,167 ringgit a tonne in Kuala Lumpur-traded futures in rival vegetable oil palm oil.
Malaysian palm oil exports fell by 5.7% month on month in December, according to cargo surveyor ITS – a rate of decline well below the 14.4% rate seen as the December 20 stage.
Palm oil futures also rose by 0.9% to 6,278 yuan a tonne on China’s Dalian exchange.
‘Very strong demand’
In New York, cotton futures made a decent start too, adding 0.9% to 71.30 cents a pound for March delivery, amid further upbeat comment over US exports, after strong export sales data last week.
“Fundamentally, demand for US cotton for export continues to be very strong as the pace of shipments continues to improve,” said Louis Rose at the Rose Report.
“Total net sales and shipments for the week ending December 22 were reported at approximately 347,000 and 288,000 running bales, respectively.
“For the first time during the current marketing year, shipments surpassed the weekly pace required in order to meet the USDA’s export projection of 12.2m bales” for the whole of 2016-17.
