(Agrimoney) – After Monday brought agricultural commodity markets, as one broker put it, “the first weather market” of 2015, would the next session bring the first Turnaround Tuesday?
Chicago traders believe that a strong trend, upward or downward, on the first session of the week is typically reversed in the next one.
That would imply weakness this time.
But while corn and soybeans were in negative territory in early deals, the setback was minor compared with yesterday’s gains.
And wheat made further headway.
Shares vs crops
As for what is behind the resilience, there are plenty of ideas of fund forces at work, one being beginning of month/quarter/year buying – a bit of a “January effect” as it might be called in equity markets, which often rise in the first month of the year, although not this time.
Tokyo shares tumbled 3.0%, while Sydney stocks dropped 1.6% and Seoul shares 1.8%. Major European markets opened weaker too, by 0.7% in the case of Frankfurt.
Indeed, the weakness of share markets is seen as potentially another factor favouring ag commodities.
“We would not put past us that some money flow was taking place out of energies and equities into the agriculture markets,” said Terry Reilly at Futures International.
Benson Quinn Commodities proposed “an aspect of capital rotating out of equities and into commodities at work”.
South American weather worries
And then there is the prospect of slew of statistics in the works.
Conab, the Brazilian crop bureau, is expected to update its crop estimates on Friday, at a time when South American weather worries are on the rise – albeit undeservedly so some brokers believe.
Benson Quinn Commodities, talking of ideas of dryness in northern Brazil, said that “while there are a few areas that have been trending drier and the current forecast offers the best potential for moisture in southern areas, this one seems like a real reach at this point.
“The global soybean market still has an oversupply problem even if a few want to lower Brazilian production estimates from lofty 99.0m-tonne estimates to more 94.0-96.0m-tonne, record -large production estimates.”
Another US broker said: “There was some dryness reported in the eastern portions of Brazil but overall South America is still on track for a potential record year.”
There are some other South American weather concerns, with Futures International’s Terry Reilly, noting an “unfavourable weather forecast” for the region, flagging that “Argentina was hot and dry over the weekend while southern Brazil was too wet”.
Palm up
But the bigger statistics day is on Monday when, as an appetiser, the Malaysian Palm Oil Board reveals data on Malaysian palm production, exports and stocks for December – expected to show a 23% slump in output, from November, thanks to floods.
Inventories are expected by traders to drop 11.4% from November to reach 2.02m tonnes.
Palm oil futures rose 0.8% to 2,281 ringgit a tonne in Kuala Lumpur, as of 09.45 UK time (03:45 Chicago time).
‘High-risk report’
Later on Monday will bring a slew of US Department of Agriculture data, including the monthly Wasde crop report – which will show “final” estimates for output of major US crops last year – but with separate briefings on US grain inventories and winter wheat sowings too.
Richard Feltes at Chicago broker RJ O’Brien said that upward pressure on grain futures had come in part as “shorts were reluctant to maintain positions ahead of the high-risk January Wasde crop report next Monday”.
He added: “We are prudently cautious on forging a strong directional conviction ahead of Monday’s report, given heightened uncertainty over US corn and soybean planted acreage for 2014, likely tweaks in the final corn and soybean yields, and uncertainty over corn feed use.”
This figure, covering the three months to December 1, “has varied by over 600m bushels over last three years alone”.
Signal from history?
Another broker warned that “if the reports turn out to be bearish, we could see a large correction just as we did in January 2010”.
Then, as recently, “we had a nice post-harvest rally after a good growing year in 2009”, lifting corn futures from around $3.15 a bushel to a high of $4.26 a bushel just before the report.
“By February we were back down to $3.47 a bushel, most of which was lost in the first two days after the January 12 [Wasde] report.”
Still, for now, soybeans for March were holding on to most of their gains of the last session, easing 0.5% to $10.39 ¾ a bushel, but remaining above a clutch of moving averages, including the 40-day and 50-day lines.
Corn for March eased 0.4% to $4.04 ¼ a bushel, given some extra support by talk of Chinese buyers snapping up stacks of US distillers’ grains, a corn-derived feed ingredient, follow the removal of a barrier presented by a genetically modified variety.
Cold weather
Meanwhile, some observers too are pointing out that cold temperatures in the US could raise feed requirements, with animals needing to eat more to stay warm.
“We could see increased feed needs for the livestock out in the frigid temperatures this week,” CHS Hedging said.
But the real worry has been in the wheat market, where cold temperatures may, or may not, be causing significant winterkill in autumn-sown seedlings.
“Seriously cold weather sweeping across the US Midwest this week, raised concern for the winter wheat crop, especially those areas that have little or no snow cover,” CHS Hedging said.
Benson Quinn Commodities said: “There may be some light damage in a few areas. Expecting significant damage is a reach.”
Crop deterioration
But what was less in contention was that wheat crops had already deteriorated, with a series of USDA reports showing a marked drop in ratings of seedlings from late November levels.
In Illinois, the proportion slumped to 24% from 56% on November 24.
In Kansas, the top wheat growing sate, 49% of winter wheat was rated in “good” or “excellent” conditions, down from 61% on November 24.
Terry Reilly said: “A decline of 12 points over a six-week period is concerning to us,” although added that “as history will show, the real development of the winter wheat crop will take place after it emerges this spring”.
Chicago wheat for March was 0.4% higher at $5.91 a bushel, also getting support from demand talk, with China said to have bought two cargos of spring wheat, potentially from the US, and looking for more, while Algeria has purchased 450,000 tonnes of wheat, almost certainly from the European Union.
