Grains go begging in buyers market

Europe's deepening debt crisis will continue to reverberate in grain markets this week as investors weigh risk, while prices falling to multi-month lows could present a buying opportunity for consumers. The euro fell to a more than seven-week low against the dollar on Friday as the cost of borrowing in Italy soared in a sign that investors could continue to flock to the greenback as a safe haven at the expense of risk assets like grains.
The negative correlation between the dollar index and Chicago Board of Trade grains were between 60 percent and 70 percent last week, showing the strong and rising inverse relationship between prices and the dollar's strength. CBOT soybeans futures are at the cusp of breaking below $11 per bushel for the first time in more than a year, ending on Friday at a 11-month low of $11.06-1/2 per bushel.
Soy futures have plummeted more than 8 percent this month, or just over $1, and seemed to have found a spot that has drawn demand from China, which bought nearly 1 million tonnes of the oilseed from the United States in the week that ended November 17. Traders are now anticipating China, the world's top soy importer, to show an interest in corn, whose prices have slipped below the psychologically important $6 mark to an 11-month low after closing on Friday at $5.82-1/2 per bushel. China, the world's second-largest corn consumer, however, could put off purchases to rebuild its state reserves in the face of easing prices at home and a bumper domestic crop.
Wheat prices fell to their lowest level in 13 months on Friday, but still face stiff competition from low-cost producers in the Black Sea region, including Russia. But traders know only too well of the unpredictable nature of Chinese buying, and that the country's buying instincts are driven in large part by prices. By contrast, countries like Japan are known in the trade as being "quality" buyers. "If corn gets into the $5.50 area, there will be a lot of interest," said Karl Setzer, a grains analyst at MaxYield Co-operative in West Bend, Iowa.
"The last large influx of buying interest showed up when corn fell below $6," he said, alluding to China buying almost 1 million tonnes of US corn about 10 days after prices hit a low of $5.72-1/4 on October 9. Setzer also said there was talk in the market that index funds could be lightening their positions in corn by up to 50,000 contracts when they rebalance in early January.
Other analysts said the reduction in positions could come before the end of the year. Large speculators have slashed their net long positions in CBOT corn since a major sell-off in September, while becoming net short in soybeans for the first time in 16 months.
Traders have speculated that these large speculators, which include hedge funds, have been shifting their attention to more profitable markets such as oil or merely moved to the sidelines in the wake of the burgeoning debt crisis in Europe. China's economic growth, along with the euro zone debt crisis, will remain in focus for signs of slowing demand.
"If the situation in Europe continues to worsen, investors are going to reduce risk exposure," said Mike Zuzulo, a grains analyst with Mike Zuzolo of Global Commodity Analytics in Lafayette, Indiana. "Investors are also facing tightening global liquidity. Money is heading to the sidelines or going into the yellow metal (gold)," he said, adding that end-users did not see any reason to lock up grain supplies when prices are falling.
He said US corn was being challenged by supplies from Ukraine and Argentina in global export markets, but added that recent declines in prices in the United States were making US corn more competitive. John Baize, president of trade consultant John Baize and Associates in Falls Church, Virginia, said US farmers were adamantly holding off grains sales because of low prices. "Farmers don't need the cash, as a general rule, at the moment," he said, alluding to how farmers have built up cash reserves from historically high prices in recent years. "Prices are way too cheap for them," he said.