Palm gains. But grains wait for steer as oil drops below $50

(Agrimoney) – The headline news for investors on Wednesday was a drop for Brent crude below $50 a barrel for the first time since May 2009.

The spot February contract touched $49.66 a barrel in early deals, before recovering some ground to stand at $50.43 a barrel as of 09:35 UK time (03:35 Chicago time).

Still, shares were pretty unmoved, even though oil’s decline is seen as a mixed blessing, boosting economic growth hopes for some economies, but fuelling deflation fears too for the likes of the European Union.

Tokyo stocks closed up all of 0.01%, while Seoul shares gained 0.3%, and Sydney stocks eased 0.2%. London shares gained 0.6% in early deals.

Rubber drops

As for agricultural commodities, volatility was pretty hard to find there too – with two exceptions – with investors having noted that it is particularly the case so far in 2015 that real direction in prices has not come until US trading hours.

The exceptions were first rubber, which dropped 2.2% to 209.50 yen a kilogramme in Tokyo, hurt by the drop in oil, the source of synthetic alternatives, and by ideas of slowing economic growth in China, the top importer of the tyre ingredient.

In China itself, Shanghai rubber futures for May dropped 1.2% to 13,440 yuan a tonne.

Palm rises

The second was palm oil, which soared 1.7% to 2,323 ringgit a tonne in Kuala Lumpur, despite a major use being in making biodiesel, a market sensitive to crude values.

Earlier, palm oil reached a two-month high of 2,328 ringgit a tonne, to touch its 200-day moving average, on a continuous chart, for the first time in seven months.

Besides weakness in the ringgit, which makes Malaysian exports more competitive, the vegetable oil’s strength is being attributed to the prospect on Monday of data which traders believe will show a large downturn in the country’s palm production last month, thanks to flooding.

Malaysian palm stocks are seen dropping 11.4% month on month to 2.02m tonnes.

Reports ahead

Data on Monday are also a consideration for grain investors, with the US Department of Agriculture poised to release its Wasde report, with final US 2014 production estimates for major crops, besides quarterly statistics on domestic grain inventories, and a report on winter wheat sowings too.

In fact, there are some negative takes from a Bloomberg analyst survey ahead of the data, showing expectations of only a small downgrade of 75m bushels, to 14.342bn bushels, in the forecast for the US corn production figure.

For soybeans, the US output estimate is seen being upgraded by 4m bushels to 3.962bn bushels.

This despite widespread ideas of sizeable downgrades to the USDA estimate for area, with farmer filings signalling lower figures than have been factored in.

“Trade has been talking for several weeks that lower acres would result in lower production in next week’s report average estimates are not pointing in that direction,” Benson Quinn Commodities said.

Feed use question

As for grain stocks, Richard Feltes at RJ O’Brien pointed out that the average estimate for the corn figure in Monday’s inventory report was 11.138bn bushels, implying feed use of 2.493bn bushels in the three months to December 1.

That is up on the 2.412bn bushels a year before, and somewhat negates the cautions from some traders of late to look out for a surprisingly buoyant consumption figure in the report.

“The take home point here is that trade is already dialling in large – record – US corn feed use for the quarter,” Mr Feltes said.

‘Apocalyptic cold weather’

Still, weather fears remained alive, if disputed, for corn and soybean crops in South America, and winter wheat in the US.

“Apocalyptic cold weather sweeping across the Midwest this week has raised concern for the winter wheat crop, especially those areas that have little or no snow cover,” CHS Hedging said.

“OK, maybe ‘apocalyptic’ is a bit strong, but it is cold out there.”

Still, the broker was less convinced by the concerns over dryness in eastern and central Brazil.

“Bulls are touting a bit of dry weather in parts of South America, but with nearly ideal conditions overall, little concern should be given for now.”

‘Not sure it is truly very bullish’

At Commonwealth Bank of Australia, Tobin Gorey said: “Weather forecasters continue to expect South American weather to largely remain very supportive of crop development for now.”

And at Country Futures, Darrell Holaday said that “the market now views the South American weather forecast as friendly [for prices].

“I am not sure it is truly very bullish, but that is certainly the perception in the market the last two days. We are still looking at a Brazilian soybean crop that is between 92m and 98m tonnes.”

Soybeans for March eased, but only by 0.1% to $10.55 ¼ a bushel.

‘Global demand has vanished’

Corn, meanwhile, which underperformed in the last session, gained, but only 0.1% to $4.05 ½ a bushel for March delivery.

Besides pressure from lower oil prices on ethanol margins, there are ideas of orders from other segments drying up too.

“Global demand for corn has vanished,” Benson Quinn Commodities said.

“Traditional US buyers were active as basis weakened. They have not been overly active of late.”

Chicago vs Kansas City vs Minneapolis

Nor was wheat moving far, gaining 0.25 cents to $5.92 a bushel in Chicago for March delivery, although Kansas City hard red winter wheat was a little more active, in nudging 0.2% higher to $6.36 ½ a bushel amid some talk of demand for higher protein wheat.

“Some traders noted China faces a shortage of the high-protein wheat for food usage, such as hard red winter wheat,” said Terry Reilly at Futures International.

“China could increase imports of high protein white and durum wheat too.

“If China does import more wheat, look for Kansas City and Minneapolis contracts to widen over Chicago over the next 0-3 months.”

Minneapolis spring wheat for March was actually up 0.1% at $6.26 ¼ a bushel.