(AgriMoney) – Are we there yet? At the bottom of the correction in grains and oilseeds, that is.
The external market signs were not that promising early on Monday, with the dollar adding 0.2%, on ideas that the US Federal Reserve may restrict the flow of ultra-easy US monetary policy, thus preventing less of a risk of currency debasement.
A stronger dollar makes dollar-denominated exports, including many commodities, less affordable to buyers in other currencies.
And many raw materials eased early on, including London copper and Brent crude, down 0.4% at $110.86 a barrel as of 09:20 UK time (03:20 Chicago time).
‘Yield was pretty low’
However, agricultural commodities, which have largely proved contrarian to the downside of late, kept up their contrary streak, but showing gains.
This included New York raw sugar, which stands itself not far above two-year lows, but which for March delivery rebounded 1.0% to 19.03 cents a pound, helped by talk that the 2012-13 Thai sugar crop could fall below levels previously expected.
“We are about to review sugar output again as we have got lower cane production and the yield was pretty low. We could produce less than the 9.4 million tonnes we expected earlier,” Somsak Suwattiga, secretary-general of Thailand’s Office of Cane and Sugar Board, told news agency Reuters.
“The major problem was a fall in the CCS (commercial cane sugar rate) in the cane.”
Sugar prices have been weighed down by the prospect of a further world surplus in 2012-13.
‘Corrective move higher’
In Chicago, grains and soybeans got off to a firm start too, although it was unclear whether this was down to more than bargain hunting, and the prospect of a key US Department of Agriculture report.
The USDA will on Friday release its latest key Wasde world crop supply and demand report, for which expectations on domestic corn and soybean supplies have become increasingly bearish, as highlighted by Informa Economics pre-briefing estimates on Friday.
However, given the record of the report in provoking limit up or down moves in Chicago futures, in five of the last six years, there is a belief that many investors will chose to take profits ahead of the Wasde – taking profits meaning closing short positions, which have profited from recent price falls.
Brian Henry at Benson Quinn Commodities said: “Further liquidation remains a possibility.
But with the USDA report looming a corrective move higher from oversold conditions could emerge as position squaring develops ahead of the report.”
‘Argentina dries out’
In fact, many of the fundamental reasons which have pressed on crop prices remain live.
South American weather, for instance, remains broadly benign, with WxRisk.com forecasting that “Argentina dries out” over the next week – dryness that farmers desire after persistent rains which continued in parts of Santa Fe and Entre Rios over the weekend.
Meanwhile, in Brazil, where dryness has been more of an issue, east central areas will see “heavy rains”.
Luke Mathews at Commonwealth Bank of Australia said: “Favourable moisture is forecast for southern and central Brazil over the next ten days while drier weather in Argentina should allow farmers to complete their seeding programmes.”
There is hope for rains in some dry US winter wheat areas too, with WxRisk.com foreseeing “significant rain over much of central and eastern Texas and central and eastern Oklahoma” later this week, with broader Plains rains next week.
Unwarranted gloom?
However, there is plenty of thought that the deteriorating South American and US weather risk has been more-than-adequately priced in by the fall in prices over the last month to six-month lows in corn and wheat and, temporarily, soybeans too in the last session.
A focus in wheat, for instance, on modest US export sales data released on Friday “is unwarranted considering the Christmas disruption”, Mr Mathews said.
“More importantly, cumulative sales over the past four weeks are up 107.5% year on year.”
Lynette Tan at Phillip Futures was slightly more prosaic, saying that “today, we may see some retracement of last week’s losses in all three grains markets as relative strength indexes show all three contracts are close to or at oversold levels”.
‘Extreme example of fund liquidation’
And certainly, prices rose in early deals, with Chicago wheat for March adding 0.5% to $7.50 ¾ a bushel, and corn for March up 0.7% at $6.84 ¾ a bushel.
Soybeans for March gained 0.5% to $13.74 ¼ a bushel.
Still, the doubts remain, given the fund liquidation evident in data from Calpers, the giant California pension fund, showing a cut in commodity holdings from $3.54bn to $1.56bn in one month.
“This may be an extreme example of fund liquidation but shows the mindset of the investment community towards the commodity markets of late,” Kim Rugel at Benson Quinn said.
“Declining open interest over the past three months confirms this mass exodus as well,” she said, noting a decline from record large open interest in soybean futures of 833,271 on July 17, falling to less than 550,000 lots now.
