Grains fall on wet southern hemisphere weather

January 12th, 2016

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Category: Grains, Oilseeds

corn 450x299(Agrimoney) – Grain futures extended losses on Monday, as weather prospects for the Southern Hemisphere harvest improved, ahead of Tuesday’s big data release.

There was further pressure from outside markets, as the slump in Chinese equity continued.

The Shanghai Composite Index was down 5.3% overnight, boding ill for demand from the world’s top commodity importer.

And the collapse in crude oil prices continued, with February Brent crude futures 6.4% at a new 12-year low of $31.41 a barrel as Chicago markets closed.

The Reuters Core Commodities index slumped 2.7% to a 14-year low.

Data release

On Tuesday, the US Department of Agriculture will release not only its monthly Wasde crop supply and demand report, but also statistics on domestic grain stocks and winter wheat plantings.

“The January report is a big report and often a market moving report,” noted US Commodities.

“The odds favour a bearish report with slower exports and the outlook for higher ending stocks.”

“There is always a risk on quarterly stocks reports of a major surprise. Could see late session buying accelerate—especially given large managed fund shorts,” warned Richard Feltes, of RJ O’Brien.

Tuesday will also see an update on Brazilian from the national crop supply body Conab.

Weather improves

But markets also had to contend with the prospect of strong supply from the Southern Hemisphere, as weather prospects improved for corn and soybeans.

“The weakness today can generally be tied to good rainfall in two key areas in the Southern Hemisphere over the weekend,” said Darrell Holladay, of Country Futures.

“Heavy rains are expected across northern and central Brazil this week, which should lead to further imporvemetns in soil moisture in Mato Grosso, Goias, Bahia, and Minais Gerais,” said Kyle Tapley, of MDA Weather services.

Rains are also expected in southern Argentine, while some helpful drying is headed for Southern Brazil and Northern Argentina.

US soybean export inspections in the week to last Thursday were reported at 1,244,364 tonnes.

March soybeans finished down 0.4% at $8.61 ¼ a bushel.

Rains reach South Africa

In South Africa, which has been contended with extremely dry weather across the Corn Belt, rains have finally arrived.

“A major pattern change is expected across South Africa this week, with rains finally becoming widespread across western portions of the Corn Belt” said Kyle Tapley.

“The rains should continue into next week as well, leading to significant improvements in soil moisture.”

Brazilian corn area

High domestic corn prices could keep second-crop corn production in Brazil in line with last year’s record levels, said think tank Cepea.

The research institute said that the current corn price could encourage plantings that would, depending on weather, deliver a similar size crop to 2015, which saw record production.

US corn export inspections in the week to last Thursday were reported at 550,258 tonnes.

March corn futures in Chicago closed down 1.5% at $3.51 ¾ a bushel.

Snow cover

And Richard Feltes, of RJ O’Brien, noted that the former Soviet Union is expected to receive more snow, before a cold snap forecast for next week.

Snow helps protect winter wheat crops from the worst effects of the frost, during their dormancy period.

Concerns have been raised about the thin and patchy snow cover, particularly in western Ukraine.

US wheat export inspections were reported at 393,688 tonnes.

March Chicago wheat ended down 2.2% at $4.69 a bushel.

Net-short grows

With outside markets unfriendly, and weather supporting production, the markets shrugged off data from the Commodity Futures Trading Commission regulator, which showed a huge net-short in agricultural commodities.

Managed money, a proxy for speculators, lifted its net short position in futures and options in grains, including the soy complex, to its highest level since records began in 2006.

Extreme net shorts of this sort are sometimes considered bearish, as they leave room for a bounce as short positions are closed out.

‘Relaxed assessment’

The broad commodity rout weighed on softs as well.

Coffee was down on ideas of stronger supply.

“Besides general issues such as concerns about China and risk aversion, not to mention a weaker Brazilian real, a more relaxed assessment of the coffee supply situation is also contributing to this price movement,” said Commerzbank, noting that Columbia reported its highest crop in 23 years for 2015.

March arabica coffee settled down 3.8%, at 114.45 cents a pound. March robusta coffee settled 2.8%, at $1,444 a tonne.

Spate of selling

March raw sugar finished down 2.1%, at 14.15 cents a pound.

“We seem more likely than last week to test support levels around 14.00 cents in the short term,” said Tom Kujawa, of Sucden Financial.

Sugar markets are also poised for a spate of selling, as Index funds rebalance.

“Starting last Friday, through to next Thursday, the Index Funds will be selling about 50,000 lots,” sid Robin Shaw, of Marex Spectron.

Cotton bucks trend

March New York cocoa settled down 3.8%, at $2,902 per tonne, an eight-month low for the front-month contract.

Data on European cocoa grinding, a proxy for demand, will be released this week.

But March cotton bucked a bearish trend, bouncing up from a three month low of 62.28 cents a pound to settled up 0.2%, at 61.50 cents a pound.

 

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