MARKET DEVELOPMENT
Morning Markets: Palm Oil, Wheat Manage Christmas Eve Gains
Morning Markets: Palm Oil, Wheat Manage Christmas Eve Gains
24/12/2014 (Agrimoney.com) - It is the day before Christmas, a key holiday in period in Christian countries, but there isn't too much of a sense of calm in ag markets, bar of course weakened trading volumes.
Low volumes can mean high price volatility.
"Many traders have already left for vacation which means liquidity is starting to dry up and larger moves can happen as a result," one US broker said.
"We have seen this occurrence many times with the most recent one being the Friday after Thanksgiving when we had a sharp breakout late in the session."
And in, say, Malaysia, a mainly Muslim nation, palm oil futures hit their highest in nearly a month, boosted by concerns that strong monsoon rains will disrupt harvesting and logistics in the world's second-largest producing and exporting country of the vegetable oil.
Tighter supplies?
While Malaysian output typically declines at this time of year, the fall could be as much as 11% in December, month on month, a poll of analysts showed.
Meanwhile, on the demand side, latest Malaysian export data, as measured by cargo surveyors, has shown increasing improvement as December has gone on.
Oil price stabilisation has helped too, given that a major use for vegetable oils is in making biodiesel.
While Brent crude was 1.0% lower as of 09:15 UK time (03:15 Chicago time), at $61.05 a barrel, it is giving the impression of stabilising, after falling to a five-year low of $58.50 a barrel last week.
Palm oil for March was 1.0% higher at 2,231 ringgit a tonne in Kuala Lumpur, after hitting 2,236 ringgit a tonne earlier, the highest for a benchmark contract in nearly a month.
Rubber bounces
The strong rains, in hitting Thailand, the top rubber exporter, too have also helped support prices of the tyre ingredient, which added 0.5% to 203.40 yen a kilogramme in Tokyo for June delivery.
Rubber prices have bounced more than 8% from a December 11 low, despite the weakness in prices of oil, the raw material for synthetic alternatives.
Rubber values have also been lifted by: data showing a 19% rise in Indian imports last month, to 33.156 tonnes, boosted by a decline in domestic output; ideas that Thailand may boost purchases from producers after selling some of its stocks to China; and by weakness in the yen.
Egypt hit too?
In grain markets, wheat gained too, adding 0.4% to $6.37 ¾ a bushel in Chicago for March delivery, helped by fresh concerns over Russian supplies.
On Wednesday, the head of Russia's grain union was reported as warning that the country may fail to supply wheat to Egypt next month, thanks to export curbs.
Egypt, the world's biggest wheat importer, and a key buyer from Russia, has been seen, with a handful of other countries such as Armenia and Serbia, as receiving favourable treatment, as far as Moscow's wish to retain domestic supplies goes.
Moscow has voiced all kinds of plans for keeping wheat in-country, and so putting some limit on food inflation.
Waiting game
Not that Russia is the world's only wheat exporter, with neighbouring Georgia, for instance, in talks with Kazakhstan for alternative supplies.
"At least two Russian shipments of grain destined for Georgia have been stopped, with losses incurred by the Russian exporters," Terry Reilly at Futures International.
Still, investors are interested in exactly what Russia will do in terms of restraining export, and when.
"With Russia announcing they will impose export taxes on grain exports the trade is waiting to see how large the taxes will be," CHS Hedging said.
"A 3m-tonnne reduction in exports can easily be absorbed by other exporters.
"If the tax, along with other export barriers, would reduce exports by more than 3m tonnes, world balance sheets would need further adjustments."
Chart pull
Wheat's Chicago peers did not fare quite so well, with corn for March down 0.4% at $4.12 ¼ a bushel, amid profit-taking, after in the last session setting a five-month closing high.
There is some idea that chart factors may push the contract higher, with focus centring on a chart gap in July between $4.23 ¼-4.26 a bushel.
"It appears corn is still going after that July 4 gap fill at $4.26 a bushel," one US broker said.
CHS Hedging said: "Technically, the corn market is in position to test the gap at $4.26 a bushel in the March contract if nearby resistance is taken out.
"If it gets through the $4.26 level, the next major resistance is $4.50."
''Have cut into margins'
However, on the downside, weak ethanol production margins are testing market ideas of strong demand, which have gained some traction ahead of US grain inventory data due in mid-January.
Many believe the data will show smaller-than-expected stocks, a reflection of resilient demand from ethanol plants and livestock feeders, rather than of the harvest proving weaker than had been thought.
Still, CHS Hedging noted "spot ethanol margins approaching zero and negative when going out on the 3-6 month curves", a factor which means "corn basis levels should remain on the defensive".
"Lower oil prices have cut into margins that had been in excess of a dollar/bushel just a few weeks ago."
Harvest pressure?
Meanwhile, soybeans for January eased 0.7% to $10.31 ¾ a bushel.
Are prices beginning to feel pressure from the boost to supplies from the South American harvest?
"Early-maturing bean harvest has started in western Mato Grosso, Brazil last week," CHS Hedging noted.
Still, the "peak of the soybean harvest is from the middle of February to the middle of March," and could be even later this year.
"Due to early planting delays the crop may mature a little later than normal."
In fact, Imea, the institute of agriculture economics in Mato Grosso, Brazil's top soybean producing state, has forecast 5.9% of the state's crop being harvested by the end of next month, equivalent to about 1.6m tonnes, and a slower-than-usual pace.
Low volumes can mean high price volatility.
"Many traders have already left for vacation which means liquidity is starting to dry up and larger moves can happen as a result," one US broker said.
"We have seen this occurrence many times with the most recent one being the Friday after Thanksgiving when we had a sharp breakout late in the session."
And in, say, Malaysia, a mainly Muslim nation, palm oil futures hit their highest in nearly a month, boosted by concerns that strong monsoon rains will disrupt harvesting and logistics in the world's second-largest producing and exporting country of the vegetable oil.
Tighter supplies?
While Malaysian output typically declines at this time of year, the fall could be as much as 11% in December, month on month, a poll of analysts showed.
Meanwhile, on the demand side, latest Malaysian export data, as measured by cargo surveyors, has shown increasing improvement as December has gone on.
Oil price stabilisation has helped too, given that a major use for vegetable oils is in making biodiesel.
While Brent crude was 1.0% lower as of 09:15 UK time (03:15 Chicago time), at $61.05 a barrel, it is giving the impression of stabilising, after falling to a five-year low of $58.50 a barrel last week.
Palm oil for March was 1.0% higher at 2,231 ringgit a tonne in Kuala Lumpur, after hitting 2,236 ringgit a tonne earlier, the highest for a benchmark contract in nearly a month.
Rubber bounces
The strong rains, in hitting Thailand, the top rubber exporter, too have also helped support prices of the tyre ingredient, which added 0.5% to 203.40 yen a kilogramme in Tokyo for June delivery.
Rubber prices have bounced more than 8% from a December 11 low, despite the weakness in prices of oil, the raw material for synthetic alternatives.
Rubber values have also been lifted by: data showing a 19% rise in Indian imports last month, to 33.156 tonnes, boosted by a decline in domestic output; ideas that Thailand may boost purchases from producers after selling some of its stocks to China; and by weakness in the yen.
Egypt hit too?
In grain markets, wheat gained too, adding 0.4% to $6.37 ¾ a bushel in Chicago for March delivery, helped by fresh concerns over Russian supplies.
On Wednesday, the head of Russia's grain union was reported as warning that the country may fail to supply wheat to Egypt next month, thanks to export curbs.
Egypt, the world's biggest wheat importer, and a key buyer from Russia, has been seen, with a handful of other countries such as Armenia and Serbia, as receiving favourable treatment, as far as Moscow's wish to retain domestic supplies goes.
Moscow has voiced all kinds of plans for keeping wheat in-country, and so putting some limit on food inflation.
Waiting game
Not that Russia is the world's only wheat exporter, with neighbouring Georgia, for instance, in talks with Kazakhstan for alternative supplies.
"At least two Russian shipments of grain destined for Georgia have been stopped, with losses incurred by the Russian exporters," Terry Reilly at Futures International.
Still, investors are interested in exactly what Russia will do in terms of restraining export, and when.
"With Russia announcing they will impose export taxes on grain exports the trade is waiting to see how large the taxes will be," CHS Hedging said.
"A 3m-tonnne reduction in exports can easily be absorbed by other exporters.
"If the tax, along with other export barriers, would reduce exports by more than 3m tonnes, world balance sheets would need further adjustments."
Chart pull
Wheat's Chicago peers did not fare quite so well, with corn for March down 0.4% at $4.12 ¼ a bushel, amid profit-taking, after in the last session setting a five-month closing high.
There is some idea that chart factors may push the contract higher, with focus centring on a chart gap in July between $4.23 ¼-4.26 a bushel.
"It appears corn is still going after that July 4 gap fill at $4.26 a bushel," one US broker said.
CHS Hedging said: "Technically, the corn market is in position to test the gap at $4.26 a bushel in the March contract if nearby resistance is taken out.
"If it gets through the $4.26 level, the next major resistance is $4.50."
''Have cut into margins'
However, on the downside, weak ethanol production margins are testing market ideas of strong demand, which have gained some traction ahead of US grain inventory data due in mid-January.
Many believe the data will show smaller-than-expected stocks, a reflection of resilient demand from ethanol plants and livestock feeders, rather than of the harvest proving weaker than had been thought.
Still, CHS Hedging noted "spot ethanol margins approaching zero and negative when going out on the 3-6 month curves", a factor which means "corn basis levels should remain on the defensive".
"Lower oil prices have cut into margins that had been in excess of a dollar/bushel just a few weeks ago."
Harvest pressure?
Meanwhile, soybeans for January eased 0.7% to $10.31 ¾ a bushel.
Are prices beginning to feel pressure from the boost to supplies from the South American harvest?
"Early-maturing bean harvest has started in western Mato Grosso, Brazil last week," CHS Hedging noted.
Still, the "peak of the soybean harvest is from the middle of February to the middle of March," and could be even later this year.
"Due to early planting delays the crop may mature a little later than normal."
In fact, Imea, the institute of agriculture economics in Mato Grosso, Brazil's top soybean producing state, has forecast 5.9% of the state's crop being harvested by the end of next month, equivalent to about 1.6m tonnes, and a slower-than-usual pace.