Slumping U.S. grain futures rose on Monday in a technical bounce from oversold conditions and as signs of progress to resolve a U.S. budget crunch lifted a range of commodity and equities markets.
The Thomson Reuters-Jefferies CRB Index of commodities prices rose to its highest level in nearly a month after U.S. lawmakers indicated compromises were possible in negotiations to avert US$600 billion in tax increases and spending cuts due to start in January — the "fiscal cliff" that threatens to send the U.S. economy back into recession.
"At least for today, everybody’s feeling kind of optimistic about budgetary negotiations in Washington," said Dale Durchholz, analyst for AgriVisor. "It’s one of those risk-on days."
The grain markets were due for a rebound after soybeans set a five-month low on Friday, erasing gains from the summer’s devastating U.S. drought, and wheat fell to a four-month low, traders said.
Soybeans sank last week on an improved outlook for global supplies and on Monday were trading down 22 per cent from an all-time high of $17.94-3/4 a bushel reached on Sept. 4 as concerns about the drought peaked (all figures US$).
"Soybeans are oversold and due for a technical bounce," said Brian Hoops, president of Midwest Market Solutions.
January soybeans advanced 0.8 per cent to $13.94-3/4 a bushel at the Chicago Board of Trade. December wheat added 0.5 per cent to trade at $8.41-3/4 a bushel, while December corn jumped 1.6 per cent to $7.38-3/4 a bushel.
Commodity funds bought an estimated 11,000 corn contracts, 4,000 soybean contracts and 1,000 wheat contracts, CBOT floor traders said.
Eyes on demand
Soy prices felt additional support from a temporary halt to regular state soy sales in China, which traders expect will lead to increased U.S. sales to the world’s top soy importer.
Beijing is starting a stockpiling program for soybeans to improve margins for soy plants and spur imports, according to the China National Grain and Oils Information Center (CNGOIC), an official think tank.
"Their buyers and their crushers are going to be sourcing more beans out of the world market, a.k.a. the U.S., rather than sourcing beans out of the Chinese market," Durchholz said.
Word that Chinese buyers had canceled deals for at least 600,000 tonnes of U.S. soybeans dragged prices lower on Friday. The CNGOIC said the deals were scrapped as weak domestic demand and a recent drop in prices made those purchases unprofitable.
However, the decline in prices should spur fresh sales, analysts said.
"The main thing now is will we start to see a pickup of Chinese imports," said Sudakshina Unnikrishnan, an analyst with Barclays Capital.
The U.S. Department of Agriculture said 62 million bushels of soybeans were inspected for export last week, topping expectations for 53 million to 59 million. Weekly export inspections were 14.35 million for corn, above expectations, and 11.1 million for wheat, within expectations.
Separately, the USDA said private exporters struck deals to sell 20,000 tonnes of U.S. soybean oil to unknown destinations.
Traders also expect to see an improvement in demand for U.S. wheat as supplies tighten in other exporting countries like Australia and Ukraine.
Record-low wheat ratings
The U.S. winter wheat crop on Monday scored a record-low condition rating for this time of year due to dryness in the Great Plains, according to the USDA.
The department, in a weekly report, dropped its good-to-excellent rating two percentage points to 34 per cent, below expectations and down from 50 per cent a year ago.
Analysts said the decline was concerning but noted the crop can bounce back before harvest next spring if the weather improves.
"We’ll wait to see what the weather’s like in February or March," said Mike Krueger, president of The Money Farm.
– Tom Polansek covers agriculture and the CBOT for Reuters from Chicago. Additional reporting for Reuters by Ivana Sekularac in Amsterdam and Naveen Thukral in Singapore.