As Europe edges toward a solution to its burgeoning debt crisis, investors in grain markets will sharpen their focus on moribund export demand and crop prospects in agricultural powerhouse South America. There will also be interest in whether the US congressional super-committee of Democrats and Republicans can reach agreement before its November 23 deadline to slash the budget deficit by at least $1.2 trillion over 10 years.
Failure by the committee, which has been meeting behind closed doors for about two months, could heighten acrimony between Republicans and Democrats already in campaign mode before the 2012 general elections in November. There was also talk that financial investors were reducing exposure in grains in favour of other commodities like crude oil - which has rebounded to near $100 a barrel as economic fears ease - because prices are well past their peaks and markets have been trending sideways in recent weeks.
"There is a rumour that investment money is getting out of grains, and it could be true. Look at the dollar, which is weaker and yet grains are lower," said analyst Robert Bresnahan of Trilateral Inc in Chicago. "Grains can't find a friend." The dollar and grains have an inverse relationship as the conventional wisdom is that a stronger greenback would reduce export demand for grains from the United States.
DOLLAR-GRAINS MOVE IN TANDEM The dollar index fell more than 1 percent on Friday and yet Chicago Board of Trade corn and wheat ended the day lower. Soybeans were higher, only because prices were rebounding from a sharp sell-off last week. Similarly on Thursday, CBOT grains futures had shrugged off a weaker dollar to head lower.
CBOT corn futures snapped a five-week winning streak, dropping nearly 3 percent last week. CBOT wheat and soybeans fell for their second straight week. Grains are well off their summer peaks and the US Department of Agriculture will update its estimates for the corn and soybean crops in the United States for the final time in January, leaving a vacuum in fundamentals till then.
A poor export pace has been weighing on grains, especially for soybeans, due to strong competition. "Cumulative soybean sales for the year are at just 64 percent of last year's pace," said grains analyst Karl Setzer of Maxyield Co-operative in West Bend, Iowa.
Competition from Brazil, the world's No 2 soybean producer after the United States, is stronger and analysts are expecting the country to begin shipping its soybeans earlier than usual, narrowing the US window for exports. Brazil, projected by the USDA to topple the United States as the world's No 1 soybean exporter next year, has an early crop and is expected to begin its export season in late January instead of February as normal.
Setzer said traders will monitor South American weather, which has been nearly perfect for crops. "If we don't have a weather market, it's going to be difficult for bulls to find a place to hang their hats," he added.
DECEMBER CONTRACTS IN FOCUS Analysts were expecting investors to liquidate CBOT December contract positions as index funds roll positions from the spot month to deferred contracts. Other investors are also liquidating positions in December contracts due to a lack of bullish factors.
"Some people thought that the November (USDA) crop report would rally the markets, but it didn't so they are getting out of their December positions," said grains analyst Dan Basse of AgResoure Co in Chicago. December corn futures had 391,543 open contracts, December wheat 124,023 contracts, while open interest in CBOT soyoil and soymeal were a combined 161,622 contracts.
First notice day for delivery against the December contract, which expires on December 14, is the end of November. Analysts continued to monitor the transfer of accounts with open positions in bankrupt broker MF Global to new brokerages, with the process of moving about 50,000 commodities accounts going slower than had been expected.
The analysts said traded volume in grains markets were subdued due, in part, to the slow pace of transfers as many of the account holders had been asked to raise their margins in the new brokerages they were assigned to.