(Agrimoney) – Ag commodity bulls hoping for a turnaround Tuesday to reverse the largely negative trend of the last session were disappointed in early deals.
Sure, there were some ags which, on the second session of the week, headed in the opposite direction to the one they trod in the first – a reversal dynamic Chicago traders look out for.
However, these were largely contracts which rose on Monday.
Cotton, for instance, which in the last session rebounded strongly from five-year lows, this time headed back towards them, lacking sufficient fundamental urgency to hold them higher, although some weather concerns are arising in Uzbekistan and parts of China.
“Cotton regions in the former Soviet Union countries, excluding Tajikistan, and in far north China are probably too dry for impending cotton planting,” said Tobin Gorey at Commonwealth Bank of Australia.
“For now that will simply result in a delay to planting but might have more influence if they persist.”
Cotton for March was 0.3% lower at $58.46 cents a pound in New York as of 09:00 UK time (03:00 Chicago time).
‘Good export demand’
In Chicago, soybeans, which managed gains in the last session, eased this time, by 0.3% to $9.80 ¼ a bushel for March delivery, baulking in an earlier attempt to close back above their 10-day moving average.
Soymeal, which has returned to being a prop for the complex, made small gains, by 0.1% to $339.30 a short ton for March.
Terry Reilly at Chicago-based broker Futures International flagged “good export demand for US supplies with South America out of the picture”, for now, until its harvest replenishes soybean supplies.
And soymeal retains some technical support too.
“Soymeal prices have broken down from their recent consolidation pattern but have not seen much follow-through selling,” Anne Frick at Jefferies said.
In fact, the March contract closed the last session back above its 100-day moving average.
Oils slip
But soyoil, the other main soybean processing product, eased, shedding 0.4% to stand at 30.95 cents a pound for March delivery, 0.08 cents a pound above a five-year low reached earlier.
“Soyoil prices appear to be declining in sympathy with the palm oil on weakness in petroleum oil prices and ideas that as a result, usage of vegetable oils for biodiesel will fall short of earlier expectations, and possibly be down on a year-to-year basis,” Ms Frick said.
“In the case of palm oil, there are also weak exports,” with Monday bringing data from cargo surveyors Intertek and SGS showing Malaysian shipments down 17.7% and 19.0%, respectively, month on month for the first 25 days of January.
Palm oil itself dropped 0.2% to 2,167 ringgit a tonne in Kuala Lumpur – now down more than 9% from a January 15 high reached on concerns over the impact of heavy rains on Malaysian production.
Chinese import worries
Back with soybeans themselves, there are some demand fears too, with some expectation of a further round cancelled orders from Chinese buyers, the world’s biggest.
“With the recent Chinese bean cancellations and favourable growing conditions in South America we see good cause to stay on the lower range of US soybean export estimates,” one US broker said.
“In fact we have heard that many of these Chinese buyers are having a hard time opening lines of credit.
“The crackdown of the Chinese shadow financing deals,” that in essence used raw materials as collateral, “has hit many commodities hard, including copper, soybeans, and iron ore.”
‘Pipeline is pretty well satisfied’
While grains were seen in the last session gaining from the unwinding of long corn/wheat– short soybean spreads, the reverse was not true this time.
Weaker soybean prices did not infer higher grain values, with corn for March shedding 0.3% to $3.83 a bushel, amid some demand concerns too.
“The defensive tone in US Gulf basis indicates the corn pipeline is pretty well satisfied for the time being,” said Brian Henry at Benson Quinn Commodities.
“Without fresh news I would expect the March contract to continue to gravitate toward $3.75 a bushel or the bottom end of the nearby range.”
The grain certainly faces an increasing technical conundrum, proving unable to stay for long above its 10-day moving average, which is at $3.85 a bushel and falling, but also finding support at $3.82 a bushel and, further below, likely to see some kind of a floor at its 100-day moving average, at $3.78 a bushel.
‘No threat of winterkill’
Wheat for March extended its losses, falling 0.3% to $5.18 ¾ a bushel, awaiting signs that lower prices encouraging demand.
“The focus is still on whether US wheat will fall further from here or range trade sideways,” CBA’s Tobin Gorey said.
“The action of the last day or so suggests further falls rather than the broad stability we are looking for.”
Nor is the weather providing sufficient reason to protect risk premium.
“There is no threat of winterkill for the US, Europe, or former Soviet Union over the next week,” Futures International’s Terry Reilly said.
‘In decent shape’
While there has been some concern over dryness in the US southern Plains, Benson Quinn Commodities’ Brian Henry said that “price action has shown very little interest in this story as there is time between now and wheat coming out of dormancy to receive more moisture.
“My conversations with boots on the ground typically indicate the wheat crop is in decent shape in most areas.”
In fact, Kansas City-traded hard red winter wheat, as grown in the southern Plains, came close to hitting a five-year low in falling 0.3% to $5.52 ¾ a bushel for March delivery.
CHS Hedging said that the contract “has the October low of $5.50 a bushel on the continuous chart in the crosshairs.
“If penetrated that would push Kansas City futures into the lowest prices since July 2010.”
