(Agrimoney) – The last trading day of the month is often associated with selling, with funds seen keen to withdraw some cash to pay bonuses and client withdrawals.
And with it being the end of the quarter and year too, and after a more positive spell for prices of grains, then price declines on profit-taking might seem on the cards.
Especially when, as data overnight showed, hedge funds have built up their net long positions in agricultural commodities to the biggest in nearly six months, meaning that end-of-month position closures are indeed likely to mean winding up long bets, putting downward pressure on prices.
Rubber’s bounce
And early trading on Monday in ag commodities indeed had a negative stance, with a couple of notable exceptions.
One was rubber, which soared 3.9% to 13,590 yuan a tonne in Shanghai for the best-traded May contract, a two-month closing high. (The Tokyo rubber market was closed for a holiday.)
The gain took the contract’s headway in two sessions above 7%, spurred by thoughts of easier Chinese monetary policy which, in supporting expectations for economic growth, have boosted prices of some metals too.
Iron ore prices touched a seven-week high of 516 yuan a tonne on the Dalian earlier.
Still, Shanghai stocks gained 2.2% to end the year up 52%, making the bourse the best performer among major world stockmarkets in 2014.
Chinese economic hopes have also been boosted by weaker oil prices, a trend which continued with Brent crude down 2.5% at $56.46 a barrel as of 10:10 UK time (04:10 Chicago time).
As Agrimoney.com discussed yesterday, weak crude prices may not be as immediately negative for rubber as might be thought, despite being the source of synthetic alternatives.
Malaysian floods have also spurred sentiment, with the country’s plantation industries and commodities minister, Douglas Uggah Embas, forecasting that the nation’s rubber supply will “reduce drastically” in early 2015 thanks to setbacks from heavy rains.
Oats gain
The other ag notable for gains was oats, which gained 0.8% to $3.07 ½ a bushel in Chicago for March delivery.
Was this a sign of concerns that cold North American winter might bring transport disruptions, as earlier this year, when oat futures hit a record high of $6.00 a bushel? (The US is reliant for much of its oats on imports from Canada.)
Whatever, oats are viewed in some quarters as a leading indicator on prices, with “oats knows” an old Chicago adage.
Winterkill worries fade
Other grains, however, declined to follow suit, with the US cold spell signally failing to spur concerns of winterkill in wheat.
“Recent single digit and sub-zero temperatures haven’t garnered much concern of winterkill here in the US,” said CHS Hedging.
“Some snow coverage and plentiful world supplies allow for such worries to remain at bay.”
“Winterkill talk has failed to support the market,” said Terry Reilly at Futures International.
“There are small areas in the northern Plains that are uncovered, but most of the northern Plains have snow cover, so it will not be an issue in major winter wheat producing areas.”
‘Needs to work lower’
As an extra setback, Chicago’s March contract in the last session closed back below its 200-day moving average.
“An already weak technical picture in the wheat market took on more water with Tuesday’s lower trade and poor close,” said Brian Henry at Benson Quinn Commodities.
“From a fundamental and technical standpoint, it feels like the wheat market needs to work lower before finding lasting support.”
Chicago wheat for March stood 0.5% lower at $5.99 ¼ a bushel – giving up another technical landmark in falling below $6 a bushel for the first time in two weeks.
‘Bearish technical signal’
Wheat’s weakness was a pressure on corn, which eased 0.3% to $4.05 ¼ a bushel for March delivery, also suffering from some technical concerns, besides feeling pressure from weaker crude values.
“With the recent weakness, corn is slowly moving towards establishing a bearish technical signal on the weekly charts,” CHS Hedging said.
At Iowa-based broker Market 1, Mike Mawdsley said that “after making new highs since summer on Monday, profit-taking kicked in”, adding that, from a technical perspective, “the 20-day moving average is the next support level to test”, at just under $4.03 ½ a bushel.
Good weather
Benson Quinn Commodities’ Brian Henry noted that “growing conditions for South America are viewed favourably” too.
“There has some talk of excessive moisture in a few areas. I expect any issues related to this to be a minor inconvenience affecting localised areas,” he said.
And of course this is a particularly supportive factor for soybeans, for which Brazil is just starting a harvest which is expected to end up at a record high.
Crop scout Michael Cordonnier this week raised by 1.0m tonnes to 94.0m tonnes his forecast for the crop.
Futures International’s Terry Reilly said: “Favourable weather in South America and good early harvest yields will continue to weigh on soybeans.”
‘Seeing some normalcy’
Indeed, March soybeans were 0.2% down at $10.41 ¾ a bushel, getting little help from the products, with soymeal for March shedding 0.5% to $352.80 a short ton.
“The US soymeal pipeline is seeing some normalcy now and helped drag futures lower,” Mr Reilly said, noting a weaker basis at Gulf ports “following weakness this week in the interior truck markets”.
Soyoil for March shed 0.6% to 32.788 cents a pound, undermined by a decline in prices of rival vegetable palm oil in Kuala Lumpur, where the best-traded March contract dropped 0.7% to 2,267 ringgit a tonne.
Malaysian plantations minister Douglas Uggah Embas warned of flood damage to the country’s palm oil output too, foreseeing a drop of about 15-30% this month, compared with a more typical seasonal decline of 10%.
However, palm oil futures, which had risen for eight straight sessions until yesterday, felt pressure from profit-taking, besides from weaker prices of crude oil – important since biodiesel plants are major users of vegetable oils.
