(Agrimoney) – Grain markets showed some surprising strength on Tuesday, despite a generally grim macroeconomic picture, in what appeared to be continued short covering, ahead of next week’s Wasde report.
Outside markets were unfriendly, as April Brent crude oil fell back 3.7% to $32.97 a barrel in late deals.
And the Dow Jones was down 1.8% as Chicago markets wound up, after the FTSE 100 closed down 2.3%.
Short covering
But despite the troubled macro environment, grains showed some strength.
“Outside markets tend to offer a negative tone, but the grains have done a decent job of divorcing themselves from the day to day weakness in the outside markets,” noted Brian Henry, of Benson Quinn Commodities.
“Another round of short covering seems to still be the story,” said Darrell Holaday, of Country Futures.
‘Technical buying’
“It is really hard to explain the buying,” he added.
“Probably the best explanation is that the market has been very slow and it does not take much buying to spur some technical buying.”
Short covering may be being spurred by the approach of the February Wasde report from the US Department of Agriculture, out next week, which can bring volatility if forecasts miss or exceed expectations.
Traders may be keen to close out positions amid a general “risk-off” sentiment.
Argentine uncertainty
Row crops also got a touch of support from uncertain prospects in Argentina, where weather has been dry.
“With 30-40% of the Argentine corn crop at the critical development phase the crop is in need of moisture in the next 2 weeks to prevent yield loss,” said CHS Hedging.
And for soybeans, CHS noted that “if the forecast rains do not materialize this week in Argentina there will be more talk of reducing the crop by at least 1-2m tonnes”.
And those rains in Argentina are far from certain.
Low confidence
Don Keeney, of MDA Weather Services, saw rains remaining “very limited” across eastern and north-central Argentina this week.
The 6-10 day outlook is forecaster a “notable upturn in showers,” but Mr Keeney noted that “confidence in this wetter outlook remains low”.
March corn was up 0.3% at $3.72 ¼ a bushel in late deals.
March soybeans were up 0.5%, at $8.85 ½ a bushel.
Egyptian snub
But French wheat prices weakened, as grain merchants snubbed a tender by Egypt, the world’s top wheat importer.
Gasc, the Egyptian grain authority, said on Tuesday it had cancelled a wheat tender after no offers were made.
Merchants are believed to staying away due to the decision by Egyptian authorities to reject cargos containing even trace levels of ergot.
Egypt at the weekend rejected a 63,000-tonne cargo of French milling wheat, and has reportedly also rejected two further smaller shipments, all over ergot contamination, even though the levels fell within the 0.05% limit specified in the tender.
Ergot uncertainty
“No-one wanted to take the risk at the moment to make any offer,” Francois Thuary of Paris-based consultancy Agritel said of Egypt’s tender no-show, speaking to Agrimoney.
“What the market needs is some clarification about the rules.”
March Matiff wheat closed down 0.6% at E160 a tonne, a contract low, and the lowest level for a front month contract since September of last year.
Later in the day, Gasc revealed it was now negotiating for 3m tonnes of wheat, for purchase outside the quota system, in order to meet local demand.
March Chicago wheat was down 0.2%, at $4.74 ¼ a bushel in late deals.
Falling inventories
Data from the International Cotton Advisory Committee released after markets closed on Monday saw Chinese cotton imports falling by 40% in 2015-16, compare to an earlier forecast of a 34% drop.
But in its first estimates for 2016-17, the ICAC saw inventories falling by 1m tonnes, after a 1.6m tonne drop in 2015-16.
And an Indian government official said that India’s cotton harvest was seen at 35.2m bales in 2015-16, down 3.6% from earlier estimates, after droughts hit production.
New York cotton was up 0.6% at 62.17 cents a pound in late deals, its highest level in over a week.
Sugar jumps up, Cocoa down
Cocoa futures gave back most of Monday’s rally, as March New York cocoa settled down 3.7%, at $2,761 a tonne.
But raw sugar futures jumped back from a 4-month low of 12.66 cents a pound, late in the New York session.
March raw sugar settled up 1.3%, at 12.99 cents a pound.
