Wheat tumbles below $5, and sugar by 4%

February 3rd, 2015

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Category: Grains, Sugar

Sugar-Beet450x299(Agrimoney) – Wheat futures recorded their first close below $5 a bushel in four months as rains diluted fears over US seedlings, and after strong Russian export data.

Wheat for March ended down 2.0% at $4.92 ¾ a bushel in late deals in Chicago, just above a four-month intraday low of $4.92 ¼ a bushel reached earlier.

The decline was viewed as being in part down to technical factors, with a fall in futures below the psychologically-important point of $5.00 a bushel encouraging further selling.

However, analysts said that fundamental factors too were fuelling the decrease, including waning concerns over dryness seen as threatening prospects for winter wheat seedlings in parts of the US Plains.

‘Improved moisture’

While there have been some market nerves over the prospect later on Monday of US Department of Agriculture data from key states on US wheat crop condition, investors are being reassured somewhat by rains of up to 1.25 inches, and snow of up to 8 inches, over the weekend in the likes of Kansas and Nebraska.

“Likely slippage in selected monthly state winter wheat ratings tonight should be offset by the beneficial impact of a widespread weekend rain/snow event across the Plains and Midwest,” said Richard Feltes at broker RJ O’Brien.

According to weather service MDA, “showers in southern Plains areas this past weekend improved moisture for wheat,” although “dryness continues in central areas”.

In the Midwest, soft red winter wheat country, snow cover has increased “which will protect wheat from winterkill as cold conditions return”, the weather service said.

Russian exports

Meanwhile, at Country Futures, Darrell Holaday highlighted the dent to sentiment from data showing strong Russian wheat exports last month, in the run up to the wheat export tariff of at least E35 a tonne which went live on Sunday.

“The bearishness this morning is down to the fact that Russia announced they exported 1.5m tonnes of wheat in January,” Mr Holaday said.

“Do you think the industry worked hard to avoid the tariff? That tonnage means that there is less wheat that will be impacted by the export tariff.”

Lower prices

And this pressure on prices came at a time when regulatory data suggested that hedge funds had plenty of headroom to lift further their net short in Chicago soft red winter wheat – the speculators’ favourite, given its greater liquidity than other contracts.

Indeed, Kansas City-traded hard red winter wheat, as grown in the southern Plains, fared less badly, standing down 1.1% at $5.34 ¼ a bushel for March delivery.

Minneapolis spring wheat for March finished down a modest 0.5% at $5.53 ¼ a bushel, amid continued talk of import demand from China, and of low prices making US farmers think twice about sowing the grain.

Paris wheat for March felt pressure from Chicago and ended down 1.3% at E183.00 a tonne, despite an upgrade by the European Commission to its forecasts for EU exports in 2014-15.

Signally, from a technical perspective, Paris wheat for March closed below its 200-day moving average for the first time in nearly two months, a factor which may encourage further fund selling.

Ethanol help

Corn, however, proved more resilient than its fellow grain, and ended down just 0.25 cents at $3.69 ¾ a bushel for March delivery.

The performance cut corn’s discount to wheat in Chicago to below $1.25 a bushel for the first time, for the March contracts – down from a high of $2.64 a bushel on December 18.

The resilience reflected better evidence of demand than for wheat, in which the US faces a sharp drop in exports and replacement in feed rations with other grains.

The US Department of Agriculture reported the sale of 132,600 tonnes of corn to Mexico, of which 121,550 tonnes was for 2014-15 and the balance for next season.

And on use for making ethanol, prospects receiving a boost from a 1.3% rise to $1.404 a gallon in March futures in the biofuel, helped by the revival in crude prices.

Brazil reported a slump to 153.8m litres in ethanol exports last month, from 192.8m litres in January 2014.

‘Improving crops’

For soybeans, prices faced downward pressure from benign South American weather.

“Weekend weather across Brazil was seen as improving crops. Argentina row crops are seen as neutral due to limited showers,” said Paul Georgy at Allendale.

CHS Hedging said: “Weekend South America weather saw mostly dry conditions across Argentina growing areas while 0.20-0.80+ inches fell across 75% of Brazilian growing areas.

“Rainfall is expected to be about average in Argentina this week while average-to-above-average rains is expected in Brazil.”

Soyoil revival

Furthermore, soymeal for March dropped 0.6% to $327.90 a short ton. The feed ingredient has been a big prop to the soy complex.

However, soyoil, the other main soybean processing product, extended its recovery, adding 1.4% to 30.41 cents a pound for March delivery.

Furthermore, regulatory data showed hedge funds already have a stack of short positions in soybean futures and options – raising questions about their appetite for more.

Soybeans for March ended down 0.2% at $9.59 ½ a bushel for March delivery.

Short-covering spree

Conversely, in raw sugar, hedge funds have closed a stack of short positions, regulatory data showed.

Indeed, they turned net long for the first time in six months, by 3,984 lots, in the week to last Tuesday.

However, the downside of a huge wave of short covering – more than 25,000 contracts over the week – is that this has created fresh scope for hedge funds to put on fresh short bets without fear of the negative position looking top heavy, as it did at the end of last year.

And many exploited this potential on Monday, after comments from the Dubai sugar conference failed to back ideas of a forthcoming supply squeeze.

‘Mostly bearish tone’

“The tone coming out of the Dubai conference is mostly bearish so far and, added to the surplus of white sugar in the key trading areas, the medium term looks decidedly gloomy for producers,” said Nick Penney at Sucden Financial.

“The funds/speculators have largely covered shorts and some may have even gone long.

“The upward pressure that existed on a technical basis at the beginning of the year is no longer present and it seems there is still much sugar to be priced.”

Raw sugar for March slumped 3.9% to 14.22 cents a pound.

‘Crops have accumulated stress’

However, arabica coffee futures for March gained 0.6% to 162.45 cents a pound, helped by ideas that the restorative potential of recent rains for drought-hit Brazilian trees may have been overplayed.

Brazil’s Conselho Nacional do Café producers’ group said that the optimism among investors over the rainfall was at odds with reality, “since the recent rains have not been widespread or abundant, and crops have accumulated stress from prolonged drought of 2014, which prevented appropriate cultivation”.

Moreover, contrary to last season, “the Brazilian harvest of conilon [robusta] beans will also suffer significant losses,” thanks to a “most critical situation” in parts of Espirito Santo, the top state for producing the variety, where drought appears more of a threat than last year.

In what might be thought of an another boost to robusta prices, data on India exports (which are chiefly of robusta or instant coffee) showed volumes, at 18,475 tonnes, falling 17% last month.

And even this figure included a far higher proportion of re-exported coffee, from the likes of Vietnam, at 5,328 tonnes – more than double the volume in January 2014.

Indonesian data rejig

Furthermore, official Indonesian data showed exports of the bean from the country’s main growing region, Sumatra, dropping 39% year on year to 9,101 tonnes last month.

However, revisions to data for previous months stole thunder from the statistics.

Indeed, officials raised their estimate for exports for every month from May onwards.

The December figure, for instance, was upgraded to 21,673 tonnes, from a previous figure of 15,937 tonnes, in revisions attributed to previous estimates being based on incomplete returns from exporters.

Robusta coffee for May closed down 0.4% at $1,948 a tonne in London.

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