Macro markets and short-covering lift cereal futures

05.12.2016

Short-sellers took profit, helping wheat and corn futures to trim losses at the end of a dismal week.

Macro markets offered some gentle support to the bullish tone. The dollar is weakening, from admittedly heady levels, despite some better than expected US jobs data.

The move is supportive for prices in New York and Chicago markets, as it improves US export prospects.

And there is also support from crude oil, which shows no signs of trimming this week's sharp gains, after Opec agreed to cut production.

Although a touch below the previous session's highs, front-month Brent Crude oil futures are otherwise at the highest level in over a year, at $54.13 a barrel.

Bottlenecks in Russia and Ukraine

Black Sea wheat exports will no doubt be massive, but logistical bottlenecks could keep a cap on them.

On Thursday Ukraine's Ag minister forecast logistical issues for 2016-17 exports.

The ministry now sees total grain exports at 41m, about 1m tonnes below previous estimates.

And Russian exporters are racing against the winter, which can freeze ports in the Sea of Azov and otherwise disrupt exports.

"We expect Russian exports to slow significantly in coming months as winter sets in and logistics become more challenging," said CRM AgriCommodities.

Australian quality concerns

And while expectations for the Australian wheat harvest are on the rise again, quality is an issue.

"We have increased our wheat production forecast to 29.4m tonnes for the 2016-17 season, just shy of the 2011-12 record and 21.7% higher than last season," said National Australia Bank.

"While the headline production figure is likely to be very large, the quality of the crop is likely to take a hit, with elevated downgrades, especially in the east where late rains were widespread," NAB said.

"Wheat should stay firm on a weaker dollar and after trading contract lows," said CHS Hedging.

March Chicago wheat futures were up 1.5%, at $4.01 ј a bushel, in late deals.  

And March corn futures were up 1.2%, at $3.46 ѕ a bushel.

Soybeans weaker

But soybeans eased down, under pressure from ideas that the US is losing out to South America in the all import Chinese export market.

"It's early Dececember with no major problem in South America where China is turning increasingly to source beans," said Richard Feltes, at RJ O'Brien.

Mr Feltes noted that it was "another day of no US beans announced in daily sales".

January soybean futures were down 0.1%, at $10.29 ј a bushel in late deals.

Funds run from sugar

The fund sell-off in sugar continues.

Nick Penney, at Sucden Financial, ascribed the selling funds looking at other investments after the shift in outside markets after the US election.

"The search is now on for other investments that promise value," Mr Penney said.

"It seems that sugar is not now the sweet alternative to bonds and shares, hence the liquidation."

March raw sugar futures settled down 1.2%, at 19.12 cents a pound, the eighth straight week of declines for the front-month contract.

Coffee rallies

Arabica markets saw the same pattern as grains, of buying at the end of bearish week.

March arabica settled up 0.6% on the session, at $145.80 a pound, but down for the fourth straight week.

But robusta markets reversed the week losses, still supported by the shortage in Brazil, which puts huge pressure on Asian producers.

"Robusta prices remain very high in Brazil and are holding," said Jack Scoville at Price Futures Group.

March robusta futures settled up 3.7%, at $2,064 a tonne.


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