(AgriMoney) – Financial markets, agricultural ones included, faced up to a cocktail of important external factors on Monday, and for many, investors found running for cover a fitting response.
Cotton managed gains.
After losing nearly 6% last week, on waning fears of a US supply squeeze fuelled by poor crop quality, the fibre edged 0.3% higher to 72.61 cents a pound in New York for December delivery as of 09:30 GMT/UK time (05:30 New York time, 04:30 Chicago time) for fears over Hurricane Sandy.
Hurricane Sandy, dubbed “Frankenstorm”, is expected to see its 75mph winds strengthen significantly when it makes landfall anywhere between Virginia, a significant cotton-growing state, and southern New England later today.
(Fears for the storm have prompted the closure of NYSE Liffe’s live trading floor in New York, besides the closure of Ice’s exchange building in lower Manhattan.
It will also delay for an as-yet-unknown period the US Department of Agriculture’s release of its weekly Crop Progress report, which had been due for publication later.)
‘Look for market jitters’
But for other financial markets, the hurricane only added to a marginally apocalyptic feel, with China and US, the world’s two biggest economies, facing political upheavals.
China’s regime will on November 8 begin its leadership transition, while the US will on November 6 hold presidential elections.
“Look for more market jitters in the days ahead as the presidential election is now less than two weeks away,” Mike Mawdsley at Market 1 said.
The election is being termed “knife-edge” in the closeness of candidates Barack Obama and Mitt Romney, and with the uncertainty beyond that of world’s biggest economy falling over a so-called “fiscal cliff” should a budget agreement not be reached.
Copper eased in London, while Brent crude dropped 0.5% to $109.00 a barrel.
Asian shares had a weak, if not disastrous, day, dropping a touch in Tokyo, 0.4% in Shanghai and 0.9% in Singapore.
‘Weather hurting yields and quality’
In Chicago, wheat had some news on crop fundamentals to inspire investors to fight the negative tide, with concerns about Argentine and Australian wheat harvests, now in early stages.
“Reports out of Argentina indicate the wheat harvest is 4% complete with concerns that wet weather is hurting both yields and quality,” Luke Mathews at Commonwealth Bank said, following heavy rains which have flooded fields and encouraged the spread of fungal diseases.
He also noted that while Russian wheat sowings were nearly complete, “dry weather is continuing to cause issues in the southern region”, where drought hit the harvest badly this summer.
Dry weather would risk poor emergence of seed, as already noted in the winter wheat crop in parts of the US, leaving it potentially more vulnerable to damage from winter cold.
Even so, wheat for December shed 0.4% to $8.60 ¾ a bushel.
‘Critical support’
And that pulled on corn, down 0.25 cents at $7.37 ½ a bushel for December, amid a key technical battle, with that price, or thereabouts, viewed as an important technical pointer.
Mr Mawdsley warned that “$7.39 a bushel looks like a key support” adding that “another lower close Monday would suggest a test of the $7.05-a-bushel low again”, the near-three-month low the lot hit in late September.
At Country Futures, Darrell Holaday termed $7.38 a bushel a level of “critical support”.
The contract is certainly at risk of closing below its 100-day moving average, at a bit under $7.37 a bushel, for the first time since mid-June.
‘Too early to be getting comfortable’
However, in the grain’s favour is the reluctance of farmers to let go of their crop, meaning that cash market basis, at least, remains strong.
“Cash markets remain firm, and with the producer content to hold unsold grain on farm they look to continue stay that way,” Brian Henry at Benson Quinn Commodities said.
“Coupled with the lack of production and presence of aflatoxin in the drought-stricken states, owning deliverable quality corn will be favoured.”
While US export and ethanol production data have fallen short of expectations, indicating effective rationing of a poor US crop, “it is far too early to be getting comfortable with a projected carry-out of 619m bushels” for 2012-13, he added.
And, with harvest over, speculators have turned more positive on the grain too, raising their net long position by 26,000 lots in the latest week, the biggest buying pressure in nearly two months, data late on Friday showed.
Technical worry
Soybeans, however, while off their intraday lows, felt the broader market pressure, easing 1.0% to $15.45 a bushel for November delivery, and by the same to $15.47 ¾ a bushel for the January contract.
OK news of setbacks for the world oilseed production, bar palm oil, keep coming in, with the oil level of Canadian canola reported weak, and Argentine soybean sowings make a slow start.
But the expiry of the November soybean contract is causing some jitters, given the unusually large investor positions in the futures with first delivery, the start of the expiry process, imminent.
While no deliveries are expected – ie, investors selling against futures, a factor which would be negative for prices in suggesting Chicago offered better terms than cash markets – “normally open interest is around 40,000 contracts on first notice”, Mr Henry noted.
Eroding such a large position with only until November 14 to go before the lot expires altogether represents some technical danger to prices.
For palm oil itself, Kuala Lumpur’s benchmark January contract shed 2.4% to 2,540 ringgit a tonne, in part playing catch-up with weaker oilseed markets on Friday, when Malaysian markets were closed for a holiday.
