By Agrimoney.com
The week ended with what looked like something of a reversal theme going on.
The crops which investors were down on earlier in the week, including wheat (until Thursday) sugar andcoffee, ended on strong note.
Meanwhile, the favoured ones, such as soybeans, which hit a record on Tuesday, and cocoa declined.
And Friday often witness some reversals as traders close positions ahead of the weekend, and the element of risk that two days without the ability to trade brings, meaning long positions get shortened, and vice versa.
For sugar, which soared 2.7%, and coffee, which added 3.1%, the calendar may have brought another price positive factor, in that it is a holiday in Brazil, the producer of both soft commodities, and meaning no pressure from farm selling from that quarter, at least.
QE3 hopes
However, the default move was actually upwards, ironically thanks to poor US employment data.
These showed the creation of 96,000 jobs last month, more than 30,000 below estimates, but which stoked ideas of action by the US central bank to boost its economy – ie, undertake a third round of monetary easing.
With easier monetary policy seen as an inflationary danger, besides bad news for the currency, in debasing it, it would represent a particular fillip for commodities, which are seen as relatively inflation proof.
Furthermore, dollar-denominated ones are more appealing as exports on a weaker greenback – which indeed dropped 1.0% on Friday.
The average commodity, as measured by the CRB index added 0.9%.
Brazil optimism overplayed?
That sugar bounced so much was also down to ideas that the close at a two-year low in the last session may have been overdone, given that there are still some risks to the accelerated cane harvest in Brazil’s Centre South, if end-of year rains arrive early, as often occurs in an El Nino period.
“It seems reports of some physical demand are persuading traders not to stay too short of the front spread,” Nick Penney at Sucden Financial said.
“Added to this is the continuing concern that when Brazil Centre South spring rains arrive, it will curtail this year’s crop and millers will be tempted to leave cane standing ’till next year to improve development and sucrose.”
Raw sugar for October ended at 19.38 cents a pound, up \$0.51 on the day.
‘Just 10-30% of their usual rainfall’
Cocoa’s drop down 0.6% at \$2,676 a tonne for December delivery was indeed attributed largely to profit-taking.
However, forecasts for much-needed rain in West Africa also encouraged investor selling.
“That prices in the past two weeks have nonetheless climbed by more than 10% is doubtless due to the fact that the continuing dry weather in West Africa is dampening the outlook for the main crop, due to begin in October, and thus increasing the supply risks in 2012-13,” Commerzbank said.
“Some parts of Ivory Coast and Ghana have seen just 10-30% of their usual rainfall over the past 45 days.
“That said, rain is forecast for the next few days, which should help bring prices down.”
‘Providing support’
In Chicago, wheat proved able to catch market tailwind, closing up 1.5% at \$9.05 a bushel for December, and taking two-day gains above 4%.
Paris wheat was helped up 1.3% to E265.00 per tonne for November delivery, with its London peer adding 0.5% to £205.95 a tonne.
But then the grain had some held from fundamental news too, with Rabobank cutting its forecast for the Australian crop below 23m tonnes, and more than 3m tonnes below the US Department of Agriculture forecast, due for revision on Wednesday in the latest Wasde report.
The trouble is the dryness in Western Australia, where some crops look set to be abandoned, the bank said.
In the US, Paul Georgy at broker Allendale said: “The western wheat-growing areas of Australia is providing support to world wheat values.”
‘Numbers were bullish’
Furthermore, US weekly export data for wheat were solid, at 573,000 tonnes, at the upper end of market expectations.
And then there was the Statistics Canada data showing that wheat stocks in the major importing country fell 18.1% over 2011-12, with the drop actually 21% if stripping out the less-widely-traded durum variety used in making pasta.
“Wheat has continued to be the leader to the upside as the Stats Canada numbers were bullish for wheat and canola,” the rapeseed variant, Darrell Holaday at Country Futures said.
In fact, for canola, the stocks decline was even more dramatic, of 64%, which, coupled with lower harvest forecasts – cut to 14.7m tonnes by the Canadian Wheat Board earlier this week – speaks of another blow to world hopes for oilseed supplies.
Canola itself added Can\$0.60 to Can\$640.60 a tonne in Winnipeg for November delivery, but Paris rapeseed edged 0.2% lower to E517.25 a tonne.
That time of year…
Indeed, their relatively modest performance was down largely to another weak session for soybeans, which dropped for the third successive day since setting a record on Tuesday.
In part this was down to another calendar factor, in that harvest is approaching, bringing a spike in supplies, and at a time when farmers appear willing to cash in on elevated values.
“It is the seasonal weight of harvest that is pressing the basis on both corn and soybeans. This is a difficult time of year to be positive the market,” US Commodities said.
This is currently taking some of the sting out of reports of dryness in Brazil, which the world is relying on to refill soybean pipelines early in 2013.
“Brazil weather has no rain the next two weeks. North Brazil (Mato Grasso) is anxious to start plantings of soybeans,” the broker said.
Weak exports
As a further downer, US weekly soybean export sales were (relatively) poor too, at 526,000 tonnes, old crop and new combined, below expectations.
With a dearth of announcements of sales through the USDA’s daily alerts system this week too, this may be a sign that soaring prices are beginning to ration demand at last, questioning the need to go higher.
Informa Economics brought Chicago’s November soybean lot temporarily back into positive ground, with a forecast for the US soybean yield of 35.4 bushels per acre, below the official USDA number, and confounding expectations of more generous figure.
However, Chicago’s November lot eased 0.7% to end at \$17.36 ½ a bushel.
‘Clear signs of rationing’
Corn struggled too, despite the weaker dollar and all, little helped by dismal US weekly export sales of 25,000 tonnes.
“Corn exports are showing clear signs of rationing,” US Commodities said.
However, it was helped to a positive close – just – of 0.25 cents to \$7.99 ½ a bushel for December by Informa’s estimate of a 119.8 bushels-per-acre yield for the US crop, below the USDA’s figure of 123.4 bushels per acre.
Furthermore, it gained help from wheat, and from the impact of rains in slowing the unusually early harvest.
“Although it is seasonally early for harvest, the talk of delays because of rain is providing support to futures prices,” Allendale’s Paul Georgy said.
Agrimoney.com – http://www.agrimoney.com/features/marketreport.php?id=1780
