(Agrimoney.com) – With the Wasde report just hours away, would caution kick in to markets?
Not a bit of it.
There was a notable losing contract in Chicago, December corn, which shed 0.4% to $5.11 a bushel as of 10:00 UK time (04:00 Chicago time).
But that was attributed to a hangover from the last session, when the CME Group’s Globex electronic trading system fouled up for many agricultural commodity contracts, forcing deals through the open outcry traders.
Pit adjustments
Settlement was handled by the pits too for affected contracts, which included wheat (both soft red winter and hard red winter) and corn, and came in with a surprising result for December corn.
As one broker noted there was “a large 4-cents-a-bushel swing in the May-December corn spread between the time electronic markets froze and the settlement of the pit.
“Even though December corn settled at $5.13 a bushel, it never traded there as far as the pit quotes are reporting. The price was only a product of a spread sale on the final minutes in the pit.”
Removing the 4 cents means that the December contract was actually trading positively in this session, if underperforming the best-traded May contract, which was up 0.4% at $5.08 ¾ a bushel.
Goldman spreads unmade
In fact, bull spreading, in which investors spread long bets in near-term contracts against short holdings in far-ahead lots, has been a feature of markets of late, as ideas of near-term supplies tighten, for soybeans and corn especially.
As to putting a figure on this, the US Department of Agriculture’s Wasde crop report will factor that in later.
For wheat, this has been following suit a bit too as the concerns over the drought-hit US hard red winter wheat crop drive demand forward.
Indeed, on Tuesday, “word from the floor had Goldman Sachs putting spread orders in the pit late in the session, but it doesn’t sound like they were able to trade anywhere near as much as they wanted to,” Brian Henry at Benson Quinn Commodities said.
‘Largest drop on record’
Wheat for May added 0.7% to $6.85 ¾ a bushel in Chicago, while the December contract gained 0.5% to $7.15 ¾ a bushel.
Of course, a main driver in wheat too was the USDA condition rating revealed overnight which showed just 35% of the winter crop in “good” or “excellent” health, down only 1 point year on year but still an unusually low reading.
“It is the worst rating in 12 years” for the time of year, according to Agritel.
It was also well down on the 62% good or excellent at which the crop entered dormancy, in late November.
“The 27% drop is the largest ever seen over winter, spurred by both severe dryness in the Great Plains and periodic bouts of winter freeze damage,” said Luke Mathews at Commonwealth Bank of Australia.
And as for rain relief ahead, “there are thoughts on both sides of the fence, as to whether or not the rains forecast for the US Plains hard red winter wheat area will actually materialise, or be enough to benefit the crop”, CHS Hedging said.
‘Soil temperatures too low’
For corn, there are weather concerns too, in the cold soils, in part a reflection of a cold winter, which have put paid to hopes of a timely start to Midwest sowings, although it is still early days to be getting worried about late planting.
Sure “weather conditions in the Midwest should be favourable this week, being warm and dry, allowing farmers to work on the fields”, Vanessa Tan at Phillip Futures said.
“But soil temperatures in certain parts of the crop belt are too low to begin planting.”
Midwest temperatures are expected to “range from 40-50 Fahrenheit” for now, said Gail Martell at Martell Crop Projections.
“Corn seeds germinate at 50 Fahrenheit. Freezing temperatures at night would continue on most Midwest farms.”
Data later
There is also a USDA Wasde report to factor in which is expected to cut ideas for stocks at the close of 2013-14 by 53m bushels to 1.403bn bushels.
But there is some prospect of a bigger cut, with Rice Dairy foreseeing a drop to 1.306bn bushels, a reflection of an extra 50m bushels on export demand and 100m bushels for feed.
On the downside, Ms Tan noted that “China has started allowing corn imports from Brazil”, a factor which “would shift demand from US corn to Brazilian corn, especially when US corn cargoes have been rejected due to the presence of an unapproved genetically modified strain”.
Still, when Chinese imports have been underwhelming anyway, downgraded by USDA staff in Beijing, corn for May nonetheless managed its rise, to keep ahead of the December contract.
‘Cash markets steady’
The Wasde is expected to cut the estimate for soybean futures too, although not by much, by 6m bushels to 139m bushels.
Still, this would represent thin supplies, somewhere around pipeline, and kept buyers interested, with firm basis helping too.
“Cash markets are steady with producers mostly sold out of old crop stocks and Gulf values are under or near delivery equivalents,” Benson Quinn Commodities said.
The broker added: “It is the steep inverses in the market and how the market gets to fresh supplies either in late August on US new crop harvest or when it sees bigger imports that is the fear of the market.”
In fact, May soybeans were 0.7% higher at $14.93 ½ a bushel, while the new crop November contract added a modest 0.2% to $12.19 ½ a bushel.
Palm rebounds
It was also a help in oilseeds that palm oil managed to recover from two-month lows, adding 1.1% to 2,605 ringgit a tonne in Kuala Lumpur.
The vegetable oil was sunk in the last session as far as 2,573 ringgit a tonne by talk that the Malaysian Palm Oil Association producers’ group had estimated growth in Malaysian output last month at 17.8%, well above the 11% rise expected by analysts.
The Malaysian Palm Oil Board regulator will unveil data tomorrow, expected to show stocks falling 3.6% to 1.6m tonnes, according to a Bloomberg survey.
Cargo surveyors Intertek and SGS will also release Malaysian palm export data for the first 10 days of April.
Downgrade ahead?
Among soft commodities, cotton added 0.4% to 92.13 cents a pound, boosted by expectations that the Wasde will cut the forecast for US production by 200,000 bales to 13.0m bales, following recent ginnings data, with a knock-on effect on stocks.
“Analysts expect the USDA [estimate] for ending stocks to be cut from 2.8m bales to a very tight 2.5m bales,” CBA’s Luke Mathews said.
Raw sugar too managed headway, by 0.6% to 17.26 cents a pound for May, helped by expectations of dryness in Brazil’s cane belt, and by some upbeat talk from the International Sugar Organization, which has talked of rising consumption, notably in China.
“The ISO forecast that 60% of world sugar demand growth through to 2020 will come from Asia, and that the long term price outlook is more bullish than the current situation because of expected increases in Chinese imports,” Mr Mathews noted, if also highlighting that “the ISO expects no significant price increases for 2014”.
