(Agrimoney) – Weather markets often see declines on Fridays, as investors take profits for fear of weekend bringing forecasts of more benign conditions, Mondays can see price recoveries, if such forecasts fail to appear.
And this time, there seemed no let-up in the dryness concerns which prompted Informa on Friday to cut its estimates for the country’s corn crop by 2m tonnes to 25m tonnes, and for the soybean harvest by 3.9m tonnes to 54.5m tonnes.
(For Brazil, where rain is so plentiful in more northerly areas that harvest and logistical delays are becoming an issue, Informa raised its estimate of the soybean crop by 1.1m tonnes to 84.0m tonnes, and for corn by 4.1m tonnes to 70.3m tonnes.)
“Crop weather in South America is now the one most crucial factor driving corn and soybeans market and will be closely watched,” Joyce Liu at Phillip Futures said.
‘Backed off big rains’
Weather service WxRisk.com said in fact that the GFS weather model had “backed off big rains over Argentina” in the 11-to-15 day outlook, with the European model trending drier too.
And this after a weekend which was largely dry in Argentina, bar some thunderstorms in northern Cordoba.
“When we left the forecast trading world on Friday midday the G FS model had for the last some runs to develop another round of significant rain over much of central eastern and northern Argentina for the 11-to-15 day (or the middle of February),” WxRisk.com said.
“It is now significantly drier than what we saw last Friday, backing away from the idea heavy or significant rains for mid-February in Argentina.”
Price rises
The dry, and often warm, weather – with temperatures reaching 104 degrees Fahrenheit in parts of northern Argentina and western Paraguay over the weekend – comes at a sensitive time for row crops, with corn undertaking pollination, a phase in which heat and dryness can be a large setback, as the US showed last summer.
Many soybeans are setting pods, their sensitive phase.
And it helped put bulls on the front foot in early deals on Monday, with soybeans adding 0.7% to $14.84 a bushel in Chicago for March delivery as of 09:10 UK time (03:10 Chicago time).
Soybeans set course indeed for their first close over their 100-day moving average in three months, after struggling with the line in the last three sessions.
Corn for March added 0.4% to $7.39 a bushel, keeping just above its 100-day moving average too.
Upbeat feel
Not that South American weather was the only tailwind in crops’ sails.
A continuation of promising economic data kept a bright feel in financial markets, although the “risk-on, risk-off” concept may be becoming nuanced, with ideas that investors are becoming more selective with risk assets (and preferring equities), rather than painting all with the same brush.
After the well-received US payroll numbers on Friday, and upbeat monthly manufacturing surveys for many economies too, Sunday bought data showing China’s services industries growing at the fastest pace since August.
China’s non-manufacturing Purchasing Managers’ Index rose to 56.2 in January from 56.1 in December, led by gains in construction and retail sectors, government data showed.
‘Aiding margins’
Furthermore, there are hopes, in corn, for demand from US ethanol makers too, after production fell last month to its lowest on records going back to 2010, producing a shortfall in output of the biofuel which bodes well for what sites are not in mothballs.
Official US data “shows 36 ethanol plants are idled as of Tuesday, which account for 15% of total capacity nationally”, Brian Henry at Benson Quinn Commodities noted.
“The slowdown in production is aiding margins, as they inch their way back into profitability.”
Furthermore, “ethanol-based RINs are pushing higher, which should help weekly ethanol grind bounce back in the coming months”.
RINS, or renewable identification numbers, are paper credits which can be used by blenders instead of physical ethanol to meet US mandates for mixing the biofuel into gasoline.
RINS prices have soared as ethanol output has waned, a dynamic again seen by many commentators as improving the case for manufacturing the biofuel itself.
‘Priced for feed’
And where corn went, fellow grain wheat had a chance of following, especially after the US at the weekend won an order at tender from Egypt, the top importer – although the size of the purchase, at a modest 60,000 tonnes, and some questions over the pricing took some of the edge off the victory.
The winning lot was priced below $307 a tonne, excluding freight, well below other US offers, besides those from France.
As an extra potential support to wheat, its premium over corn has narrowed to a historically low $0.30 a bushel (although discounts have been seen in recent history, because of disappointing at global corn output).
“Wheat will be priced for feed versus the corn market at this rate,” Mike Mawdsley at US broker Market 1 said.
Phillip Futures’ Joyce Liu said: “We expect wheat to end slightly higher [on Monday] as the wheat-corn spread had narrowed from about $0.55 a bushel to about $0.30 too quickly and we expect some near-term correction.”
However, while wheat was in positive ground in early deals, it was lagging corn again, adding 0.3% to $7.67 a bushel.
‘Negative for prices’
Price gains were seen in Kuala Lumpur too, where palm oil added 0.5% to 2,570 ringgit a tonne, looking for a fourth consecutive upward close, and gaining strength from elsewhere in the oilseeds complex, and the weaker prospects for South American output of soybeans.
Argentina is the top exporter of soyoil, palm oil’s main rival.
In New York, raw sugar for March added 0.3% to 18.94 cents a pound, gaining some support from ideas of production declines in India, and in Thailand where miller Mitr Phol has talked of output of 8.8m-9.2m tonnes in 2012-13, well below the 10.2m tonnes the previous season.
“However, the important point is that global supplies remain in surplus and that global inventories are forecast to rise further in 2013,” Luke Mathews at Commonwealth Bank of Australia said.
“This is negative for prices.”
Cotton eases
Cotton bucked the rising trend, falling 0.5% to 82.58 cents a pound in New York for March delivery, amid ideas that the fibre’s rally may have got ahead of itself.
Data late on Friday showed speculators raising their net long position in cotton futures and options to more than 53,000 lots, a historically high figure, and raising questions of where further buying pressure will come from.
