Wheat leads grains higher, on US dryness

(AgriMoney) – Many risk assets found headway difficult, as attention wandered back to the US fiscal issues, and with major results ahead on Wednesday, from Goldman Sachs and JPMorganChase.

Shares closed lower in Frankfurt and Paris, while showing only small gains in London and New York.

The average commodity, as measured by the CRB index, eased 0.2%, little helped by a 0.2% rise in the safe haven of the dollar, whose appreciation makes dollar-denominated assets such as many commodities less appealing as exports.

‘Difficult to get too bullish’

Many soft commodities found headway difficult, with raw sugar for March ending down 1.5% at 18.62 cents a pound in New York, amid ideas that of an end to the index fund rebalancing, which meant funds buying large quantities of the sweetener to get portfolio weights back to mandated levels.

“Speculation has it that index fund buying has trailed off to an end and with the rolling over of March sugar contract starting soon in February, not to mention the global excess of sugar supplies, the near-term outlook for sugar certainly seems biased to the downside,” Joyce Liu at Phillip Futures said.

New York arabica coffeefor March ended down 0.7% at 152.50 cents a pound, continuing to feel pressure from producer selling.

While the “bulls are trying to push the market back above the 155.00-cents-a-pound resistance basis March, as soon as the market pokes its head above, the origin selling is there to whack it back down again”, Sucden Financial said.

“In truth, despite the recent rally, the fundamental points from the beginning of the year have not really changed much.

“There is still a large amount of arabica available and therefore it is difficult to get too bullish of the market.”

‘Supportive fundamental picture’

However, Chicago crops continued to gain inspiration from cuts to US Department of Agriculture estimates for domestic corn and wheat stocks at the close of 2012-13.

“The outside markets are trying to offer a negative tone, but have little influence as the trade is focused on the supportive fundamental picture,” Benson Quinn Commodities said.

That was actually not quite the case, as soybeans for March dropped 0.4% to $14.13 ½ a bushel, on the contract’s first day as the spot lot.

The oilseed felt pressure from the ideas of a strong South American crop, with weather fears looking, for now, more a threat to corn than the oilseed, as Michael Cordonnier, at Soybean and Corn Advisor, noted.

‘Ample soil moisture’

Indeed, Celeres raised its 2013 Brazil soybean crop estimate by 1.4m tonnes to 80.4m tonnes, while broker RJ O’Brien lifted its target to 84m tonnes.

“Ample soil moisture in southern Brazil will sustain crops until February,” RJ O’Brien’s Richard Feltes said, noting “no damage whatsoever from recent heavy rains in the north, although the early soybean harvest – where average yields have been reported so far – has been delayed”.

That countered positive demand fundamentals, that helped soybeans to gains earlier, with Benson Quinn Commodities noting “continued talk of additional soybean demand in the export market as well as the domestic crush is also offering support.

“Domestic crush margins remain profitable, while Chinese crush margins are also quite profitable,” the broker said, China being the top soybean importer.

‘Panicked somewhat’

Grains, however, took the opportunity to build on their recent rally, with Chicago March corn extending its winning streak to seven sessions by adding 0.9% to $7.30 ½ a bushel.

In doing so, it passed a notable chart milestone too, in closing above its 50-day moving average for the first time since early December, and setting the scene for potential “additional technical buying”, Darrell Holaday at Country Futures noted.

He added that “commercials continue to be active buyers of corn as end users have panicked somewhat after Friday’s USDA stock numbers”.

US Commodities said that “fundamentally, the market is supported by the need to ration the historically-low corn stocks and the need to slow the soybean crush.

“Limited US corn/forage is available until late August.”

‘Completely void of any moisture’

Still, corn also got a leg up from fellow grain wheat, which soared 2.1% to $7.82 ¾ a bushel for March delivery, boosted by fears over the US winter wheat crop shifting up a gear.

“The weather outlook for US hard red winter wheat areas is completely void of any moisture out to 15 days ahead,” Mr Holaday said.

“The entire weather pattern has shifted again, and a big ridge is building over the Plains and western Midwest. This has pushed wheat prices substantially higher today.”

While investors have been reluctant to go too bullish early in the season, given wheat’s ability to recover from a dry start (as in 2011-12) “we’re getting closer to point where ongoing dry hard red winter wheat weather pattern will resonate with trade”, RJ O’Brien’s Richard Feltes said. 

‘Competitive edge’

And Chicago wheat was helped too by its relative, if diminishing, competitiveness, which it gained in falling to a succession of six-month lows earlier this month.

“US wheat has a competitive edge over many origination points with global demand decent,” US Commodities said.

(That said, Commonwealth Bank of Australia’s Luke Mathews said that “Australian wheat has reportedly been offered at $385 a tonne in the most recent Iraqi tender, some $15-20 a tonne below Canadian, US and German offers”.)

Wheat has also fallen cheap relative to corn, with its premium dropping to a six-month low of $0.44 ½ a bushel earlier on Tuesday.