30th Jan 2013, by Agrimoney
In truth, it was not difficult for agricultural commodities to rise on Wednesday.
Commodities overall enjoyed a firm day, with the CRB index rising 1.0%,
as disappointment at data showing a small drop in US economic output in
the fourth quarter of 2012 was countered by a supportive stance from the
Federal Reserve.
The US central bank said that monetary policy in the world's largest
economy will remain "highly accommodative", noting a relatively high
unemployment rate.
The dollar, which stands to be debased by ultra-easy US monetary policy,
fell 0.4%, improving the affordability of dollar-denominated exports,
such as many crops, to buyers in other currencies.
Ethanol downturn
Even so, grains and oilseeds outperformed.
And this despite what looked like a major setback, when the US revealed
that its ethanol plants, which use corn as their feedstock, had cut
production to 770,000 barrels per day last week, down 22,000 barrels a
day from the week before, and the weakest figure since records began in
2010.
In another sign of a slack market, US ethanol inventories rose too.
But the output figure was seen as marking something of a nadir, with
ethanol margins improving, and the increasing expense of the renewable
identification numbers (Rins) which blenders can buy as a paper
alternative to meeting mandated activity through physical supplies.
20% becomes 25%
"Weekly ethanol production numbers were weak today," Darrell Holaday at Country Futures said.
"But many feel the number will increase in the next few weeks as ethanol margins improve."
After all, "we are starting to see a decrease in Brazilian imports of ethanol".
And late news indicated one factor in that dynamic, with Edison Lobao,
Brazil's energy minister, revealing that the country will on May 1 raise
the ethanol content of regular gasoline blends to 25%, from a current
level of 20%, a month earlier than many commentators had been
suggesting.
'Weather leans positive'
Investors overlooked the US ethanol data in favour of the bull point of growing concerns over South American weather.
"The weather leans positive, with a drier tone to Argentina in the
on-to-four day and 100-to-15 day forecasts prompting more analysts to
trim Argentina corn and soybean production forecasts," Richard Feltes at
broker RJ O'Brien said.
Lanworth on Wednesday reduced its estimate for Argentina's dryness-test
corn crop by 400,000 tonnes to 25.6m tonnes, although it offset this
downgrade with a 300,000-tonne upgrade to 75.8m tonnes in its forecast
for the Brazilian crop.
And bigger cuts may be in the pipeline, US Commodities cautioned.
"If weekend rains fail to develop, the Argentina corn crop could drop
well below the 28m tonnes that the US Department of Agriculture has
predicted, with some estimates in the 22m-25m tonne range," the broker
said.
Queue at port
Meanwhile, in more northern areas of Brazil, too much rain is proving an issue.
"The Brazilian soybean harvest continues to be delayed by 3-5% behind
normal as rains in Mato Grosso keep harvest on hold," US Commodities
said
And that means delayed supplies to Brazil's ports, where 126 vessels are
scheduled to load 6.2m tonnes of soybeans and corn, according to Unimar
Agenciamentos Maritimos, a shipping agency.
A year ago, the figure was 72 ships and 2.8m tonnes, and in 2011, 47 vessels expecting to ship 1.5m tonnes of the two crops.
'No available supply'
In fact, Country Futures' Darrell Holaday said that "the concerns in
South America today centre around the logistics problems in Brazil.
"A large number of ships are waiting for soybeans at ports and have been waiting a long time.
"Of course, those ships are supposed to be on their way to China. This
may cause some optional origin contracts to switch back to the US and
the US does not have any available supply."
The USDA announced the sale of 175,000 tonnes of US soybeans to China, although for 2013-14 delivery.
Chart boost
The impact was to send Chicago soybean futures, for March delivery, up
1.9% to $14.78 ¾ a bushel at the close, the best finish in more than a
month.
The extent of the gains was helped by technical factors, with the
contract securing its 75-day moving average, closed over on Tuesday for
the first time since September, by a margin, and coming less than 2
cents from ending above its 100-day moving average for the first time
since October.
Investors with short positions, "who did not believe that technical
resistance would be broken are now covering their position adding to the
strength", Mr Holaday said.
That went for corn too, which closed up 1.5% at $7.40 ¼ a bushel despite
the poor ethanol data, actually securing its 100-day moving average,
for the first time in three months, and its 75-day line, also for the
first time since October.
'Wheat is a laggard'
Wheat also gained in Chicago if, with a 1.3% rise to $7.87 a bushel, not
by quite as much as its peers, feeling a little weight from forecasts
for rain for dry areas, where winter wheat seedlings are under threat
once dormancy breaks.
"Wheat is a laggard and reluctant follower with trade hesitant to jump
on board with rains in the forecast for the southern plains," Benson
Quinn Commodities said.
"Beneficial rains fell over large part of the hard red winter wheat belt
within the past 24 hours and more is in the 10-15 day outlook," the
broker added.
Importers active
Still, there appears plenty of import demand about, with Syria
purchasing 100,000 tonnes, probably from the Black Sea, and looking like
more will be needed, given the poor prospects for this year's crop too,
after unrest sent output tumbling last year.
The UK raised its forecast for wheat imports in 2012-13 to nearly 2.2m
tonnes, noting that high prices, and a poor crop last year, had not
stemmed consumption.
Korea's Major Feedmill Group bought 55,000 tonnes of feed wheat, potentially from India, for May arrival through a private deal.
And this following Algeria's purchase of 500,000-600,000 tonnes of durum wheat, mainly from Canada and the US.
'Russia chatter'
US wheat is "even calculating into Russian ports", FCStone said, following the growing talk of Russian import needs too.
"Russian wheat and flour prices are rising markedly to increase the
chatter of buy-backs of spring sales, or else additional imports beyond
that which the Kazaks are supplying."
Paris wheat for March managed only a 0.2% gain to E248.00 a tonne, with
its trade competitiveness eroded by a stronger euro, which Paris-based
Agritel said was "penalising our exports".
London wheat for May didn't manage any gains at all, easing 0.3% to £215.35 a tonne.
'Worried about a correction'
Among soft commodities, New York raw sugar for March gained 1.8% to
18.71 cents a pound, boosted by short-covering encouraged by talk of
imports heading for China, which had been thought largely out of the
buying game following a recovery in domestic output.
Furthermore, Brazil's move to boost use of ethanol and a lift on Tuesday
to wholesale prices of gasoline also underpinned sugar, which competes
with the biofuel for cane in the South American country.
"The tightening prompt cash physical, the Brazilian real/dollar exchange
rate movements and the colossal net short still potentially left to
cover has some worried about a correction above 19 cents a pound,"
Thomas Kujawa at Sucden Financial said.
Arabica vs robusta
Coffee's moves reflected a rebalancing of the Rogers International
commodity index, which is cutting out arabica in favour of a 2%
weighting in robusta, the beans traded in London.
Robusta coffee for March closed up 1.7% at $1,968 a tonne, while New
York arabica beans for March fell 1.4% to 147.70 cents a pound.
The differing fates of arabica and robusta inventories were also in play.
"While London continues to hold due to low certified stocks figures and a
lack of available robusta, New York on the other hand has plenty of
certified stocks, which climbing on a weekly basis," Sucden said.
"There is reported to be lots of arabica around and despite news of
fungus affecting Central American stocks, the prices continue to fall."
