(Agrimoney) – A largely negative year for agricultural commodities headed for a largely negative finish, with profit-taking after what has been a better couple of months for grains seen playing a big role the retreat.
While regulatory data overnight showed hedge funds taking a more bullish view on ags, in fact, the most upbeat positioning in six months, that was not as upbeat news as it seemed.
Helen Plant, at the UK’s HGCA bureau, highlighted that this in fact “poses a risk to the current price levels.
“As year-end results are an important measure for investment firms, speculative traders may sell-off some of these long positions in order to book profits or re-balance their positions for a new year’s trading.”
‘Powder is not so dry’
While some have been hoping for a repeat in 2015 of the early 2014 rally, which was spurred by the likes of Ukraine’s crisis and Brazilian drought, hedge fund positioning is not so conducive to gains as a year ago, when they were running with short positions in many contracts.
“This year their powder is not so dry,” one US broker said.
“To see them add to a long position already [in corn] exceeding the equivalent of 1.2bn bushels will have to come with some serious fundamental reasons.”
The more positive positioning “is now a liability for the [corn] bulls heading into one of the biggest reports of the year”, in the US Department of Agriculture January edition of its Wasde crop report, due in a couple of weeks’ time.
Swelling ethanol stocks
To add to corn’s woes, weekly ethanol data cast a little bit of a cloud.
A drop of 20,000 barrels a day to 972,000 barrels a day in production last week could be discounted thanks to the Christmas period.
But a jump in stocks of 479,000 barrels to a two-month high of 18.09m barrels looked less easy to dispel, especially at a time when oil prices are weakening further, potentially squeezing biofuel production margins.
Brent crude hit a fresh five-year low of $55.81 a barrel, before reviving a little to $56.62 a barrel in late deals.
Ethanol itself for February ease 0.3% to $1.570 a gallon in late deals, but corn for March fared worse, down 1.3% at $4.01 ¼ a bushel in late deals, surrendering its 20-day moving average and on track to take its losses for 2014 to 5%.
‘Spotty winterkill’
Rival grain wheat fared even worse, with Russian supply worries diminished, now that the announcement of export tariffs from February has provided certainty.
And concerns over US winterkill are muted, despite some chilly temperatures this week in winter wheat growing areas.
MDA said that “cold conditions are occurring across the northern and western Plains this morning, and some spotty winterkill is likely across south central Nebraska, north central Kansas and south eastern Colorado.
“However, not major losses are expected”, with snow cover “adequate” in many parts of these states.
CHS Hedging said that “weather remains beneficial for most of the US.
“Cold temperatures aren’t expected to last long enough to do any damage and light snow is expected for much of the upper Midwest over the next few days.”
Chicago vs Paris vs London
Soft red winter wheat for March was down 1.9% at $5.90 ¾ a bushel in Chicago.
Actually, Paris soft milling wheat performed better in closing unchanged at E201.25 a tonne for March delivery.
But then, Europe is better positioned – in geographical and price competitiveness terms – and to take any orders spilling over from buyers switching from Russia.
As a measure of its competitiveness, consider that Paris futures fell 4.3% this year, more than the drop of 2% or so in Chicago prices – and this despite a retreat of 12% in the euro against the dollar.
The currency switch should imply outperformance by euro-denominated wheat.
London feed wheat closed down 0.2% at £138.05 a tonne for May and has, on a spot contract basis, lost 19% this year, despite depreciation of 6% against the dollar.
The bigger drop not only reflects the greater world supplies of feed, compared with food, grains, but also the switch by the UK to being a wheat exporter rather than importer – meaning shipping charges now count against local supplies, rather than protecting more elevated values.
South American weather
Among oilseeds, soybeans were heading for a weaker close too, standing down 1.6% at $10.27 ¾ a bushel for March delivery.
Palm oil was little help, in ending down 0.8% at 2,266 ringgit a tonne in Kuala Lumpur, despite the concerns over Malaysian flooding, with profit-taking blamed for the decline.
Meanwhile, back on soybeans themselves, “South American weather is favourable, with showers in Parana and Rio Grande De Sol and light showers and temps in the low 90s Fahrenheit for Mato Grosso and Mato Grosso Do Sul”, CHS Hedging said.
Actually, the weather outlook may not be quite so benign, with MDA flagging that in northern Rio Grande do Sul, “active rains will maintain wetness and some flooding concerns”.
Rains will also slow the early stages of the harvest in the south of Mato Grosso, Brazil’s top soybean producing state.
Still, “we trade ample global supplies and a soon-to-harvest record South American soybean crop,” Benson Quinn Commodities said, adding that “technicals seem to be in charge of today’s price action across the complex with all momentum lower”.
Coffee perks up
Among soft commodities, cotton fared badly, down 1.9% at 60.78 cents a pound in New York for March delivery, looking to end 2014 with a loss of 28% overall.
While buoyed in the last session by strong US export sales statistics, regulatory data out overnight showing a return to a net long position in hedge fund positioning in cotton futures and options was not so helpful.
The last couple of attempts by hedge funds to build a net long in cotton have ended in significant sell-downs, returning the position to a net short.
However, arabica coffee, which has proven a strong performer over 2014, ended the year firm too, recovering from a five-month low for a spot contract of 164.00 cents a pound to end at 166.60 cents a pound, March basis, up 1.1% on the day.
Overnight regulatory data were more helpful to coffee, showing the net long at a nine-month low of 29,337 contracts, as rains in Brazil’s coffee belt, hit by drought for most of the year, encouraged profit-taking.
Indeed, the number of long positions held by hedge funds fell below 40,000 lots for the first time in nine months.
Arabica coffee has gained 50% over 2014, making it by far the best performer in the CRB commodities index.
