Weakness in corn, wheat should be shortlived

Wheat, corn and soybean prices dipped on Friday, tracking broad-based losses in other commodity markets, although the setback was expected to be shortlived as background fundamentals remained supportive, dealers said.

Oil and many other commodity markets sensitive to Chinese demand fell on Friday after China increased lenders’ reserve requirement as it seeks to tackle inflation.

“Grains are easier this morning, weighed by news that China has raised bank reserve requirements by 50 bp (basis points),” Barclays Capital said in a market note, adding corn remained around the highest levels since July 2008.

Chicago Board of Trade corn for March delivery rose to an early peak of $7.14-3/4 a bushel, the highest level for the front month in more than 2-1/2 years but then slipped back to $7.06, off 6-3/4 cents or 0.95 percent by 1204 GMT.

Dealers said the fundamental outlook for corn remained strong, with stocks in the United States, the world’s largest supplier, seen falling to a 15-year low this summer.

“Corn prices should be even higher than they are,” said Ole Houe, an adviser on agricultural commodities at FCStone Australia.

Corn was also buoyed by higher-than-expected weekly U.S. export sales. The U.S. Department of Agriculture said U.S. corn sales exceeded 1 million tonnes for a third straight week, with Mexico accounting for 62 percent after a cold snap damaged its winter corn crop.

“U.S. weekly export numbers were very supportive, reflecting continued robust export demand even with the recent marked move-up in prices,” Barclays Capital said.

CBOT wheat wheat for March delivery slipped 12-1/4 cents or 1.4 percent to $8.38-1/2 a bushel.

Prices have now fallen back around 7 percent from a peak of $8.93-1/4 set last week which was the highest level for the front month in about 2-1/2 years.

“Fundamentals haven’t changed – we haven’t found any more wheat,” UK merchant Gleadell Agriculture said in a market note on Friday.

“There are still enough weather concerns over new crop prospects, although the situation has improved in China over the past week as snow has relieved part of the drought-stricken wheat areas,” the report added.

China’s drought, which is threatening its winter wheat crop, is still affecting 6.7 million hectares in eight provinces, Xinhua news agency quoted Water Resources Minister Chen Lei as saying on Friday.

There has been no effective rainfall in northern regions recently, he said. But there was enough water to irrigate 86 percent of the wheat area in the eight provinces at least once during the spring season, and 65 percent of the area twice.

“Shandong province, the second-biggest wheat producing area of China, is experiencing its worst drought in centuries. International prices are factoring in the chance of China being a major wheat importer in the next few months,” ABN AMRO/VM Group said on a report on Friday.

In Paris, milling wheat futures for March delivery eased 0.75 euros to 263.25 euros a tonne.

“We’re still in the midst of consolidation … There is no big explanation, no new fundamental behind today’s fall,” said a European trader who expected the market to resume its upward trend soon.

Soybeans also eased, losing some of the ground gained on Thursday when prices surged nearly 3 percent on hopes that China would cut its import duties on soybeans and soyoil.

China’s Ministry of Commerce has asked other ministries to consider potential cuts in import taxes on a range of goods including food, two sources said.

Details of the cuts were unclear, but influential trading firm JCI cited a trader in Singapore as saying China may cut the soybean import tax to 1 percent, from 3 percent, and the soyoil import tax to 5 percent, from 9 percent.

CBOT soybeans for March delivery fell 19-1/2 cents or 1.4 percent to $13.85 a bushel.

(Source: http://business.financialpost.com/2011/02/18/weakness-in-corn-wheat-should-be-shortlived/)