(AgriMoney) – “Looks like some traders this week think the end of the world is coming this weekend,” said Mike Mawdsley at Market 1, commenting on the dismal performance by grain and oilseeds futures in the last session, and indeed for most of the week.
“They will be surprised when we are all still around and they need to pay their January credit card bill.”
Still, while the good news for ag bulls was that Chicago had the appearance of Christmas cheer early on Friday – rather than the of apocalypse slated today by some interpretations of the Mayan calendar – the bad news was that the better sentiment may be down to profit-taking rather than real confidence that the current wave of selling is over.
There was talk that Friday’s recovery in prices reflected covering of short positions ahead of the weekend, and Christmas week, (assuming we make it through Friday), rather than a real appetite for bargain hunting.
‘Watching for signs of short-covering’
In soybeans, “the end of three-day fund liquidation, with market defending the close at $14-a-bushel psychological support, implies a dead cat bounce for the market on Friday as fresh shorts book profits ahead of the holiday”, Benson Quinn Commodities said.
For wheat, the broker flagged “the possibility of a little higher bias”, and said that “the trade will be watching for signs of short-covering due to oversold conditions and any sign that fund community is done liquidating length in wheat, corn or soybeans”.
Meanwhile, corn “has moved further into oversold conditions, which could trigger profit-taking on shorts as the weekend and Christmas approaches”.
‘Buying opportunity’
Which is not to say that crops were without any support from their own fundamentals.
Wheat, for instance, received support from US Wheat Associates, which said that the market was signalling a “buying opportunity”.
“Most of the pending factors that may affect the wheat market appear to be supportive of prices,” said the Virginia-based group (which, it must be remembered, is tasked with promoting the grain).
“The southern Plains received a little rain a few days ago but virtually the entire US hard red winter wheat production region is now severely dry.
“Hard wheat supplies from the Black Sea region are thin and there are production concerns about the southern Hemisphere crops currently being harvested.”
Indeed, “competitive” US prices “will help to drive the pace of US export sales in the second half of 2012-13”, the group added.
‘Prices should remain strong’
It gained support from Cargill’s Australian AWB grain handling business, which said that “despite the recent setback” to prices, blamed on the US Department of Agriculture’s downgrade last week to estimates for US exports, “we believe overall global cash prices should remain strong over the next three months”.
In Australia, the “supply and demand balance sheet suggests the market will remain well supported as we enter a period of strong exports to consumers of Australian grain that need cover over the next six months”, AWB’s Richard Williams said.
“In addition, the reduction in Argentina’s wheat crop will create additional demand for Australian wheat in the first half of 2013.”
He also pointed out that “moisture levels in the US hard red wheat growing regions are not ideal, however there is adequate time for rain”.
‘Somewhat perplexing’
Also in Australia, Commonwealth Bank of Australia’s Luke Mathews questioned as “somewhat perplexing” the fall in Chicago wheat futures of some 14% from an early November high.
“The most recent losses have occurred despite strong US wheat export sales results,” he said.
“US wheat export sales in the week ended December 13 were strong, at 671,100, up 17% week-on-week. And cumulative wheat sales over the past four weeks are running 17% higher year-on-year.”
Chicago wheat for March delivery added 0.3% to $7.92 ¾ a bushel as of 08:40 UK time (02:40 Chicago time).
Cattle on feed thoughts
That actually left wheat the laggard among Chicago’s big three, with March corn rebounding from its first close below $7 a bushel in five months, to stand up 0.6% at $7.00 ¾ a bushel.
Still, funds have, after all, got plenty of selling out of their system already this week, liquidating an estimated 27,000 contracts, compared with a more modest 5,000 lots in wheat.
Furthermore, weak cattle on feed data expected later, after the market closes, may not be the shape of the future.
Analysts expect cattle placements on feedlots to have fallen 9% last month, compared with November 2011, with the total feedlot population down 6.6%.
However, the poor state of winter wheat crops, which many southern farmers use for grazing cattle on, has “compounded the problems associated with pasturing cattle, while high feed and replacement costs open up the possibility of producers having to move cattle into lots early,” Benson Quinn’s Brian Henry said.
“This should bode well for placements in the next couple of months, which would increase demand for corn and feed wheat.”
Funds sated on selling?
Soybeansrecovered even further, bouncing 1.1% to $14.23 ½ a bushel for January delivery, and 1.2% to $14.22 a bushel for the better-traded March contract.
But then the oilseed has suffered an even bigger liquidation, with funds selling an estimated 30,000 lots this week.
Technically, the chart had run into resistance levels in the low $14s a bushel, with $14.04 a bushel the 76% retracement for the January contract, a key pointer for followers of Fibonacci analysis, and $14.00 a bushel itself a key psychological floor.
Furthermore, some commentators, such as Linn Group, have raised suspicions over the huge cancellations by China of imports of US soybeans.
Fiscal cliff concerns
The theme of recovery spread to Kuala Lumpur too, where palm oil for March bounced 2.7% to 2,384 ringgit a tonne.
The extent of the drop in prices, which remain near three-year lows, has prompted Thailand to propose market intervention, buying up 50,000 tonnes of the vegetable oil for state inventories, after protests from growers.
However, the rebound contrasted with the mood on external markets, soured by growing fears that the US will not reach a budget agreement, meaning the automatic enactment of budget-tightening measures and a fall over the “fiscal cliff”.
Fears have been enhanced not just by entrenched differences between Democrat and Republican politicians, but by a split within the Republican party between moderates open to some compromise and those apparently baulking at any tax rises.
Softs soften
The jitters prompted a drop of 1.0% in Tokyo shares, taking the Nikkei 225 index back below 10,000 points, while prompting a weak opening on European bourses.
And, among soft commodities, New York raw sugar for March was 0.3% down at 19.19 cents a pound.
Cotton, which as an industrial commodity, is typically attuned to macro-economic themes, actually eased a modest 0.01 cents 75.82 cents a pound for March, feeling support from strong US export sales data released on Thursday.
