Risk-on mood spreads to grain futures

(Agrimoney) – There was some cause for investors to slow, even reverse, the selling in grains which, in the last session, saw corn and wheat miss out on the “risk on” trade which lifted the likes of coffee, sugar and shares.

OK, the Ukraine-Russia ceasefire which sent most risk assets higher in the last session is not such a positive for grain prices, in enabling the removal of risk premium injected on concern of interruptions to exports from a major supply region.

But there is some scepticism around that the accord will last.

“Although a ceasefire is clearly very welcome, a number of crucial points of disagreement remain, including over the redrawing of boundaries,” said Kevin Ferriter at Capital Economics.

“As long as there is still a large gap between the Ukrainian authorities and the rebels on these issues, a lasting peace is unlikely and investors will remain wary of the implications of continued conflict.”

Holiday season

Such macro factors come especially into focus, of course, ahead of a long weekend when investors go an extra day without being able to trade.

And it is a long weekend for the US, with Monday bringing the Presidents’ Day holiday.

Furthermore, in China, next week brings holidays too, ahead of the lunar new year on Thursday.

And in Brazil, this evening sees the opening ceremony of the Rio carnival, which lasts into next week.

‘Focus will intensify’

Furthermore, there are some fundamental reasons for grain futures not to miss out completely on the markets’ party, which saw the dollar ease further against a basket of currencies on Friday, and Brent crude return above $60 a barrel for the first time this year.

A weaker dollar improves the competitiveness of dollar-denominated exports, such as many commodities, while stronger oil improves the landscape for crops such as corn used for making biofuels.

Staying with corn, for instance, there are some niggles growing over the spring planting season (already), with Commodity Weather Group pointing out that the chances of cold April, which would slow seedings, rise to 50% from 30% if February-March proves colder-than normal.

“It may be a little early to be placing bets on the Midwest spring weather pattern, but rest assured that trade focus on late winter/early spring temperature and precipitation will intensify following next Friday’s US Department of Agriculture Outlook Forum conference,” said Richard Feltes at RJ O’Brien.

(The USDA on Thursday and Friday next week unveils its first formal forecasts for domestic crop supply and demand in 2015-16, with some snippets on foreign outlooks, eg Chinese cotton, likely too.)

‘Fears of a large cut in acreage’

Meanwhile, as for Ukraine’s corn production prospects for this year, Mr Feltes flagged talk of the country’ seed imports between October and January tumbling 40%, implying either a greater reliance on local and likely less productive seed, or that growers are switching crops.

“Ukraine seed corn imports will need to advance substantially in the next 90 days to stem fears of a large cut in corn acreage,” Mr Feltes said, adding that Brazilian, European Union and US corn plantings looked likely to fall too.

This suggests “strong support” for December futures in the $3.85-3.90-a-bushel area “until traders are assured that the US corn crop has pollinated successfully”, he said.

‘Charts are bullish’

That allows for some scope for a drop in the December contract, although it declined to take the bait as of 09:40 UK time (03:40 Chicago time), rising 0.8% to $4.16 ¼ a bushel.

The March contract was 0.8% higher at $3.86 a bushel, trading earlier close to its 100-day moving average, and a little under $3.81 ½ a bushel, only to find support there.

“Charts are bullish,” said Brian Henry at Benson Quinn Commodities, if terming fundamentals “bearish” given the competition in export markets for US corn from (for now) Ukraine, and with South American crop to become “increasingly available”.

‘Renewed concerns for winter wheat’

This time, wheat was in positive territory too, finding support earlier at its 10-day moving average, at $5.19 ¼ a bushel, March basis, to bounce up to $5.23 ¾ a bushel, a 0.5% gain.

Hopes have revived that Egypt will soon announce a purchase of US wheat, using a $100m credit line granted by Washington, with Russia seen as somewhat in the doghouse with one of its top customers after saying that it would not even for Egypt waive the export duty which kicked in on February 1.

“Talk is that Egypt will soon purchase their US wheat,” CHS Hedging said, noting “ideas that they will be looking for March shipment”.

The worries over dryness in the US southern Plains revived too, with CHS flagging “renewed concerns for winter wheat, with the current cold snap moving through the Plains area.

“The biggest concern is for those areas with little or no snow cover. Drought-like conditions look to be expanding in Texas, Oklahoma and Kansas.”

Thursday’s US drought monitor showed Texas 39.2% in drought, up some 0.6% points week on week, with Oklahoma’s reading up 1.9 points at 65.0%, and the Kansas reading up 1.0 points at 38.9%.

‘No sign yet of a slowdown’

Soybeans, meanwhile, gained 0.8% to $9.91 ¼ a bushel for March, building on their return in the last session solidly above their 20-day moving average.

On a fundamental basis, the strong pace of US soybean exports, as underlined in data on Thursday, at a time when importers might be expecting to switch their custom to South America, continues to attract comment.

“So far, South America has not been a huge exporter of soybeans, although there have been reports of South American beans moving into Mexico,” CHS Hedging said.

RJ O’Brien’s Richard Feltes said: “There is no sign as yet of the US soybean demand pace slowing with weekly soybean sales today well in excess of the pace needed to meet the USDA’s target” for the full 2014-15.

Elsewhere in the oilseeds complex, palm oil was on less good form, down 0.1% at 2,291 ringgit a tonne, kept in check by industry data showing Indian imports of the oilseed falling by more than 20% month on month to 658,670 tonnes.

Soyoil imports, however, more than doubled. Chicago soyoil for March added 0.4% to 32.14 cents a pound.

Key price point

Among soft commodities, cotton futures for May, the best-traded contract, added 0.1% to 62.90 cents a pound, at what may prove a key point if they are to extend their recovery from a January 23 low of 57.95 cents a pound.

“Cotton futures will need a close above 62.90 cents a pound to convince that this rally has further to go,” said Tobin Gorey at Commonwealth Bank of Australia.

He added that “index investors are now past their contract roll window so the May contract will lose a source of buying” from funds switching out of the March lot, which is close to expiry, to more distant contracts.

Furthermore, Thursday’s weekly US export sales data were, for once, disappointing, at 52,200 running bales, down 88% week on week, and 89% from the prior four-week average.