(Agrimoney) – Volatility was the watchword for agricultural commodities on Monday.
Coffee futures’ 3% rise in New York, and 4% jump in London, as reported elsewhere on Agrimoney.com, wasn’t the only strong movement in futures.
Oats, sugar, wheat and some others also posted strong gains – even into the headwind of a firm dollar, which added 0.3% against a basket of currencies, making dollar-denominated assets that much more expensive.
A major factor seen spurring the more positive sentiment was negative sentiment – that is, the record net short position that hedge funds held in the top 13 US-traded agricultural commodities as of Tuesday last week (as shown on regulatory data released late on Friday).
Extreme hedge fund short (or long) positions have a habit of unnerving investors, raising concerns that appetite for such bets has been spent, and that prices could be vulnerable to a contrary swing as positions are closed.
Sugar soars
… which seemed to be a lot behind the price action on Monday.
Raw sugar futures for July closed up 2.3% at 12.25 cents a pound in New York, amid some ideas of rain this week in central Brazil, which could slow the cane crush and production of the sweetener a bit.
But a more major cause of buying appeared to be technical, and the climbing of futures above a 12.14-cents-a-pound market which represented a “double top” on the charts, spurring some questions among chart followers, and nervous holders of short bets, of whether a more sustainable price rally was possible.
After all, hedge funds hiked their net short in raw sugar futures and options by more than 40,000 lots in the week to Tuesday, providing ammunition for short-covering.
On the negative side for prices, Sucden Financial flagged talk that the receiver of the record 1.9m tonnes of sugar delivered against the May futures contract “has allocated only 50% of it so far”, undermining ideas of stronger end-user demand than investors had thought.
‘Could compromise quality’
Among Chicago grains, Richard Feltes at RJ O’Brien flagged that a 3.4% bounce in wheat futures, to $4.93 ¾ a bushel for July delivery, was fuelled by “profit-taking from the plunge last week in prices”, with help from “concern over harvest delays… that could compromise quality”.
The delays he was talking about were actually in the southern Midwest, soft red winter wheat country.
Still, the hard red winter wheat harvest looks like having further setbacks too, even as it kicks back into action in Texas after a false start last month.
“Wheat has once again experienced a dramatic short-covering rally, prompted primarily by models that are pushing moisture through Kansas next week,” said Darrell Holaday at Country Futures.
‘Very oversold’
Kansas, the top wheat producing state, is a hard red winter wheat producer.
And Kansas City-traded hard red winter wheat for July added 3.3% to $5.15 a bushel, closing back above its 100-day moving average, besides retaking its 40-day and 50-day lines too.
Meanwhile, there were fears of frost damage over the weekend to Canadian and northern US crops.
Furthermore, there is some idea that US Department of Agriculture crop condition data later on Monday will show a drop in crop condition that was absent last week, surprising many observers given the heavy rains over the preceding weekend.
“Remember, the wheat market gets very oversold during weeks like last week so short-covering rallies on any sign of bullish news are quite likely as they have been the last 30 days,” Mr Holaday said.
However, in a word to the bullish, he also added that these short-covering recoveries “tend to give up the ground rather quickly”.
Corn struggles
In Paris, wheat for December closed up 2.5% at E182.25 a tonne, pulled up by its Chicago peer.
But the ebullience in wheat markets did not spread as far as corn, which in Chicago ended up 0.3% to $3.52 ¼ a bushel for July, missing out on the volatility.
Weekly US exports for the grain were a bit weaker, at 975,985 tonnes for last week, down from 1.01m tonnes the week before.
And the US announcement on Friday on its proposed new blending mandates, showing a lower figure for ethanol, which in the US is mainly made from corn, weighed a bit on prices too.
Ethanol itself dropped 1.7% to $1.496 a gallon for July, ending below its 100-day moving average for the first time since mid-April.
“The buying for corn has come in sympathy with the higher wheat values,” Mr Holaday said.
Soyoil soars, soymeal slumps
In soybeans, there were cross currents too with, on the bullish side, the US mandate proposals suggesting extra biodiesel blended into transport diesel.
Given that biodiesel is made from vegetable oils, soyoil for July extended its rally of the last session, closing up 3.4% at 34.51 cents a pound – the best finish for a spot contract in seven months.
The lot has now rallied 7.6% in two sessions on mandate revisions.
However, on the negative side for soybeans was the settlement of an Argentine crushers’ strike, a perceived strong start to the US crop so far this year, and a poor pace of new crop export sales, including to top buyer China.
Furthermore, Oil World issued a caution on a glut of oilseed meals such as soymeal, July futures in which ended down 2.9% at $296.60 a short ton in Chicago – the weakest close for a spot contract since December 2011.
Soybeans themselves for July ended down 0.9% at $9.26 a bushel.
