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AM markets: funds help corn, soy breach key price points

A theme for early trading was 100-day moving averages being breached by rising futures contracts.

In corn, Chicago's December contract, in gaining 1.1% to $3.57 ¾ a bushel as of 09:50 UK time (03:50 Chicago time), rose up through its 100-day moving average, above which it has not closed in nigh on four months.

Soybeans for November, meanwhile, in rising by 0.7% to $10.16 ¾ a bushel, also pierced upwards through their 100-day line, for the first time in three months. (The better traded January 2017 contract actually finished above its own 100-day moving average in the last session, for the first time in three months.)

'Capital rotating out of energies'

This kind of signal matters when funds are said to be in town, and said to be in buying mode on ags, with many speculators sensitive to chart patterns – and positive ones often creating a virtuous (vicious for buyers) circle of higher prices improving a contract's technical appeal. Richard Feltes at RJ O'Brien talked of fund buying "ahead of month end" on Monday, while Benson Quinn Commodities underlined the ideas of weaker returns from equities driving investors into other asset classes.

"There may be a case to be made for capital rotating out of energies, that have been weaker of late, and equities that have traded a relatively narrow range of late," the broker said.

Agritel said that gain prices were "benefiting from funds reinvesting their money in commodities instead of stock markets, ahead of the likely rise of US interest rates in December".

Shares traded touch lower in early deals on Thursday, amid fears over corporate earnings and higher US borrowing costs, with New York stocks expected later to open a little lower too.

At CHS Hedging, Hoe Lardy said that "good buying activity from the algo systems is the best reason in my opinion" for the strength in soybean futures of late.

'Supportive seasonals'

Not that the 100-day moving average was the only factor that investors were watching, with Benson Quinn Commodities also flagging some particular price points. "If December corn was able to break through $3.60 a bushel, one could see additional short covering." And there were some fundamental reasons for more bullish talk too, with the broker noting for instance that "there is also a case for the supportive seasonals in corn and soybeans having some influence", with the passing of peak pressure on prices from the US harvest.

'Solid returns'

And there was the solid US ethanol production number out on Wednesday too, showing weekly ethanol output down 7,000 barrels a day last week, but still at a well-received 991,000 barrels, and speaking of decent demand for corn, the main raw material for US bioethanol plants.

"Weekly production is still high for this time of year, and crop-year to date weekly ethanol production is up 3.1% from the same period a year earlier," said Terry Reilly at broker Futures International.

At Halo Commodity Company, Tregg Cronin, talking of "solid returns" for both corn and soybean processing, said that "estimated gross ethanol margins were calculated at $0.93 a gallon versus $0.83 a gallon last week and $0.73 a gallon a year ago".

Indeed, there is talk of buyers willing to pay up for corn, with Mr Cronin reporting that "cash traders suggest some hefty overages are available in the central Corn Belt by processors with rumoured trades as high as $0.18 a bushel over December futures".

Data later

Not, it has to be said, that all signals for futures are quite so positive, with Mr Cronin for instance flagging signals from spreads between near and distant soybean futures contracts.

"When spreads and basis are combined, some producers are being paid over $0.07 a month to carry soybeans out to" the first three months of 2017, "usually not characteristic of a market which needs to be $0.30-0.40 a bushel higher".

Meanwhile, with November 2017 soybeans trading at $10.03 a bushel, well over $1-a-bushel higher than November 2016 soybean futures were trading at a year ago, there is support for ideas of increased US sowings of the oilseed next spring.

More immediately, direction later may depend on US export sales data for last week expected to come in at a hefty 1.50m-2.50m tonnes for soybeans, compared with 2.01m tonnes last time.

For corn, US export sales are expected at 900,000-1.20m tonnes, compared with 1.02m tonnes last time.

'Strong global demand'

For wheat, US export sales for last week are expected at 350,000-550,000 tonnes, compared with the 513,750 tonnes last time.

There is "strong global demand" for wheat, which has been supporting prices, Futures International's Terry Reilly said, noting the 420,000 tonnes bought by Egypt on Tuesday. Whether, though, US wheat is priced appropriately to get in on the deals… "It's important to recognise where US wheat gets into the import grids for Middle Eastern and North African importers, and what price takes it out," Halo's Tregg Cronin said.

"It is hard to believe there is much downside risk basis December Kansas City wheat futures at $4.00 a bushel, but $4.20 clearly removes US wheat from contention.  Keep those parameters in mind."

'Problem levels'

In fact, Kansas City hard red winter wheat futures for December stood up 0.5% at $4.19 ¼ a bushel, with Chicago-traded soft red winter wheat - the world benchmark, and the speculator's favourite - for December faring even better, in adding 1.0% to $4.15 ¾ a bushel.

Some ideas of weather tests for autumn-seeded wheat, planted for harvesting in 2017, were also supportive to prices. At Commonwealth Bank of Australia, Tobin Gorey said: "Forecasters see little chance of rain the dry western third of US hard red winter wheat country over the next week or so.  With temperatures expected to "continue be on the warm side for this time of year… The catch up task for rainfall is getting larger". Mr Gorey added that "forecasters also expect France's wheat regions to return to a dry pattern for the next week which would take soil moisture levels back to problem levels". 

Early snows

Still, in Ukraine, snow looks the problem with Agritel noting that it was "reappearing on the north plains of Ukraine one month earlier than normally", a negative factor for autumn grain sowings. 

"For the second consecutive year, the winter wheat planted areas will again be particularly low."


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