(Agrimoney) – OK, December isn’t always the most exciting month for grain traders.
In the words of Richard Feltes, at Chicago broker RJ O’Brien, it is “typically a period of slow news flow, reduced trading volume and trader reluctance to embrace a strong directional conviction”.
But there are seasonal trends that are more constructive for investors, with Moore Research data showing the month has some historically strong price trends too.
“Seasonally, corn is typically steady to higher into year-end, soybeans higher through December 28, while wheat erodes in the first half of December before posting a mild bounce in the last half of December,” Mr Feltes noted.
That said, there are trends within wheat too, with the historical pattern suggesting that relative strength of Kansas City hard red winter wheat compared with Chicago soft red winter wheat will “erode” in the second half of this month, before picking up again in the next.
Getting that spread right has been a profitable call, with Kansas City wheat (which usually trades at a premium thanks to higher protein content) trading even with Chicago wheat at one point in the last session, March basis, having held a rarely-seen $0.26 ¼ a bushel discount early last month.
‘Active cash markets’
Still, in early deals on Thursday, futures were defying most of those trades.
Corn for March was lower, if by a modest 0.1% to $3.60 ¾ a bushel as of 09:30 UK time (03:30 Chicago time), undermined in part by its fall back below its 20-day moving average in the last session.
Besides soft US ethanol production data released on Wednesday, implying lower-than-expected demand for corn from the biofuels sector, there are signs of producer selling picking up, if only for the reason of spreading revenues for tax purposes.
“Cash markets have reportedly been active with producers reluctantly pricing bushels ahead of January 1,”said Benson Quinn Commodities.
Soyoil slips
Soybeans for January, meanwhile, were down 0.3% at $8.90 a bushel, if remaining above their highest levels of the month, but with signs of the rally in soyoil running out of gas.
Soyoil, with soymeal one of the two main soybean processing products, stood down 0.2% at 30.50 cents a pound in Chicago for January amid profit-taking after gains spurred by ideas of stronger use from biodiesel plants.
Besides the increase in the mandated level of US biodiesel use unveiled by officials on Monday, Congress is also mulling a $1-a-gallon tax credit for biodiesel producers.
That said, a US report on Tuesday showed domestic stocks of the vegetable oil higher than many investors had expected, and from a technical perspective, some saw caution in the January contract’s attempt, and failure, in the last session to hold above its 200-day moving average.
“January soybean oil is now up eight out of its last nine trading sessions,” Terry Reilly at Chicago-based Futures International said.
“We would discount light profit taking in this market by week end.”
Deliveries in focus
In fact, wheat was, against the seasonal trend, the only one of the Chicago majors to make headway, rebounding 0.2% for March delivery from its contract closing low of the last session, to reach $4.68 a bushel.
The soon-to-expire December wheat contract, which ended the last session at the lowest for spot contract since July 2010, recovered 0.5% to $4.54 ½ a bushel.
Again, profit-taking, on short positions, looked a factor in the recovery, besides some diminishing in the rate of deliveries against the December contract.
Overnight saw a further 299 lots delivered which, while taking the total in the four days of the notice period to 4,637 lots, extended a run of weaker volumes since the2,343 lots shown up on Friday.
Furthermore, there is some idea that some sellers may be having second thoughts about seeing the futures market as such an attractive place to deliver.
“The market is still attempting to digest December delivery developments, with what looks like the original Chicago deliverer appearing to take back a significant chunk of what he put out,” Benson Quinn Commodities said.
‘Burdensome nature’
The extent of deliveries, equivalent to 630,000 tonnes, has raised comment as far as Australia, where Nidera Australia termed it “a significant contributor to the sharp fall” in wheat futures.
“In the US market, it is unusual for a large number of futures contracts to go to delivery,” the grain trader said.
“Registrations have been greater than expected and long position holders have stepped up their sales pace to square their position.
“This chain of events has bought into focus the burdensome nature of the US wheat balance sheet and the fact is, it is difficult to find adequate demand at current levels.”
Deliveries against the December Kansas City contract, meanwhile, have totalled a more modest 565 lots, including 86 contracts registered overnight, helping explain their relative recent outperformance.
Data later
As for whether these pricing patterns hold, one big question mark later is over weekly US export sales data, expected to come in for wheat at 250,000-500,000 tonnes, compared with 303,706 tonnes a week ago.
For corn, sales are forecast at 500,000-1.10m tonnes, allowing for quite a retreat from the bumper 2.04m tonnes reported for the week before.
For soybeans, sales are expected at 800,000-1.20m tonnes, at best in line with the 1.17m tonnes last time.
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