(Agrimoney) – Oil prices showed some signs of stabilising, a dynamic credited with helping shares take on a brighter hue.
Brent crude stood 1 cent lower at $50.95 a barrel as of 08:30 UK time (02:30 Chicago time), trading flattish for a third consecutive session.
Tokyo shares added 0.2%, while Seoul stocks gained 0.9%, and Sydney stocks added 1.6%.
Data ahead
However, there was no relief for grains, which were little helped by resilience in the dollar.
The greenback remained near nine-year highs against a basket of currencies, stemming the competitiveness of dollar-denominated exports, including many commodities.
In fact, “there are many in the industry that believe the dollar’s bull market is just getting started which would be a long term negative for commodity prices,” one US broker said.
And there is the prospect of key US Department of Agriculture reports on Monday to factor in – reports with a history of provoking large changes in price.
Last year, the cocktail of reports – the January Wasde crop briefing plus data on US winter wheat seedings, and grain stocks as of December 1 – provoked a sharp, trend reversal in corn futures.
‘Stocks cushion up substantially’
But whether the same will prove true this time…
Many observers are forecasting downbeat data, with Richard Feltes at RJ O’Brien, for instance, highlighting that “corn and soybean yield estimates typically advance in record yielding years”.
(Or, in traders’ speak, “big crops get bigger”.)
The inventory data will show the “corn and soybean stocks cushion up substantially year on year”, boosted by record US harvests.
Meanwhile, on the demand side, “low US wheat sales and uncompetitive prices suggest trimming of USDA’s US wheat export sales forecast”.
Fund rejig
Certainly, grain prices traded weaker although not hugely so, repeating a recent pattern of investors taking a couple of steps into negative territory early on, before waiting to see if the herd will follow suit later, in US trading hours.
There are enhanced ideas of later-session volatility at the moment thanks to the onset of the annual index fund rebalancing process, which sees them adjusting portfolio weights back to mandated levels, meaning selling last year’s top performers, (eg coffee) and buying the losers (eg cotton, crude oil).
That said, with the process well telegraphed ahead, allowing other investors to take positions ahead, it is not clear that reweighting has had much impact yet on prices.
Terry Reilly thought he might have detected the process in a rise of nearly 25,000 contracts in open interest (ie the number of live contracts) in March 2016 futures.
“Could this be index funds?” he asked.
‘Less threatening weather’
But, in positioning closing, with many investors keen to take profits ahead of the reports, and speculators now net long in corn, soybeans and wheat, this process is likely to mean downward pressure on prices.
This, before any positioning ahead of the briefings.
Besides, many of the fundamentals of late have turned less positive, with investor alarm reducing at US cold (a threat to winter wheat seedlings) and Brazilian dryness (a threat to corn and soybeans).
“Weather forecasters continue to expect South American weather to largely remain very supportive of crop development,” said Tobin Gorey.
Futures International’s Terry Reilly talked of “less threatening South American weather”, adding that “our impression of the South American crops is of favourable conditions”.
‘Would not be good news’
That said, there remain a number of spins on this.
Somar, the Brazilian meteorological agency, “is forecasting only 40mm of rainfall (1.6 inches) for central Mato Grosso between now and January 21”, said Michael Cordonnier, the respected crop scout.
“If this forecast is verified, that would represent only 10% of the normal January rainfall for central Mato Grosso,” with Mato Grosso being Brazil’s top producing state.
“It would not be good news for the majority of soybeans in the state that are current in the process of filling pods.”
Already early soybean harvest results are “quite variable, in the range of 35-64 sacks per hectare (2.10-3.84 tonnes per hectare, 30-56 bushels per acre)”, he said, with the higher yields coming from irrigated crops.
Weaker oilseeds
Soybeans for March fell in Chicago, but by a modest 0.2% to $10.45 ¾ a bushel, continuing to feel a more negative undertow from soymeal, which dropped 0.4% to $345.80 a tonne for March.
Soyoil dropped too, by 0.2% to 33.70 cents a pound, after a spell of strength,
“Soyoil has become cheap against other major vegetable oils in recent days, one reason for a rebound in prices over the previous two sessions,” Mr Reilly said.
Still, even by falling 0.2%, soyoil managed to make up ground on palm oil, whose rally, on fears for flood disruption to Malaysian production, stalled in Kuala Lumpur, where March futures stood down 0.6% at 2,355 ringgit a tonne.
Palm oil faces its own data on Monday, in the form of Malaysian Palm Oil Board statistics on Malaysia’s December production, exports and stocks, which will unveil the extent of flood disruption.
Grains ease
Grains dropped too, a little, with Chicago corn for March down 0.2% at $3.93 ½ a bushel.
Still, that small fall was enough to send the contract below its 50-day moving average, below which it has not closed since mid-October.
Wheat for March shed 0.6% to $5.63 ½ a bushel, having dropped below its 50-day moving average in the last session, not a good technical sign.
There is also continued disappointment at the US wheat export performance, including the failure to win a showing in yesterday’s tender by Gasc, the Egyptian grain authority.
“US once again missed out on the Egyptian import tender, confirmation that US wheat is too expensive against major exporting nations,” Mr Reilly said.
Not that signs are so good either in the European Union, with export licences for soft wheat falling to 196,000 tonnes this week.
That took the total so far in 2014-15 to 14.8m tonnes – strong, but falling behind the 15.1m tonnes a year ago, during the record 2013-14 season.
