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Morning markets: oil spurt lifts ag prices. Palm leads again, 11.02.15

Early deals offered hope that grain futures could end a somewhat volatile week on a firm note, offering wheat the chance for it first weekly gain this side of Christmas.

It helped that oil was firm, with Brent crude up 2.6% at $58.04 a barrel at 09:30 UK time (03:30 Chicago time), while the dollar was little changed.

Indeed, palm oil - after an early retreat failed to find the energy to bust down through the 200-day moving average on the continuous chart - found a fresh pair of legs to stand up 1.1% at 2,338 ringgit a tonne, continuing to find comfort in ideas of Indonesia raising its biodiesel subsidy.

With vegetable oils such as palm oil raw materials for biodiesel – hence finding support in higher crude prices – an Indonesia subsidy sweetener would "effectively increase demand for palm oil in Indonesia overnight, if approved," said Terry Reilly at broker Futures International.

Soyoil recovery

Palm oil's rise was in turn bullish for prices of rival vegetable oils such as soyoil, which gained 0.9% to 32.00 cents a pound for March delivery – and is now up 9% from last week's near-six-year low, achieved on ideas of a surge in US biodiesel imports from Argentina.

The contract, however, struggled to break back above its 50-day moving average, at 32.17 cents a pound, which may continue to provide some resistance to further gains.

And soyoil strength bolstered soybeans, which managed a 0.5% gain to $9.86 a bushel for March delivery, even though the other soy processing product, soymeal, remained somewhat out of favour, up a more modest 0.4% to $332.70 a short ton.

Although US soymeal export sales remain strong, actual shipments, at 4.11m tonnes so far in 2014-15, remain 10% shy of the pace a year ago, raising ideas that many of the orders will not be completed – at least during the current marketing year.

'Should offer support'

Also on the horizon for soybeans, and grains and cotton too, is the prospect next week of the US Department of Agriculture's Wasde report, revising forecasts for world crop supply and demand.

This is expected to cut the forecast for US soybean stocks at the close of 2014-15 by 12m bushels to 398m bushels – not a huge cut, but one which takes the number below the psychologically important 400m-bushel mark, and reflecting strong US exports so far this season.

And this when hedge funds have a large net short in Chicago soybean futures and options.

"The upcoming USDA report should offer support on pre-report short covering," said Kim Rugel at Benson Quinn Commodities.

South American outlook

Furthermore, expectations of Brazil's harvest are waning – albeit with a record harvest not in doubt.

While short-term forecasts see "timely rainfall in most Brazilian crop areas", with dry north east facing "substantial falls of rain starting Friday that will boost moisture in very dry soils", the long-term outlook is less benign, Tobin Gorey at Commonwealth Bank of Australia said.

"Weather models are projecting an extended dry spell thereafter in that region so the relief may be short lived. "

Still, as far as Argentina goes, crop forecasts are rising, with the Buenos Aires grains exchange pegging the harvest at 57m tonnes – 2m tonnes above the USDA forecast.

'Probable origin'

Corn gained 0.7% to $3.87 ѕ a bushel for March delivery, with one eye on the rising oil prices, but with trade attention also focused on Ukraine, the third-ranked exporter of the grain, where a collapse in the hryvnia looks like making the country's shipments only more competitive.

Already, Ukraine is "the cheapest origin for nearby corn buyers, offered at a $0.20 a bushel discount to US origin", Benson Quinn Commodities said.

And the tumble of more than 30% hryvnia on Thursday, after the central bank gave up its defence of the currency, "will likely increase the rate of export sales - Ukraine should remain the probable origin for global buyers".

Indeed, the currency factor comes amid talk that "Ukraine still has nearly half of its yearly expected exports left to ship", the broker said, if adding that this estimate appeared "high".

The Wasde is expected to be pretty neutral for corn, offering little change to estimates for either US or world inventories.

Demand signs

Nor are big changes to wheat balance sheets expected, although that did not stop March futures adding 1.1% to $5.31 Ѕ a bushel in Chicago – rising over their 20-day moving average for the first time this year.

There have been increased signs of demand this week, spurred in particular after the contract's fall below $5 a bushel on Monday, and with Egypt seen as potentially in the wings with a $100m order for US wheat, after being granted a credit line by the US.

(As an idea of how much wheat that might buy, Egypt's Gasc authority has so far this season spent well over $900m and bought some 3.6m tonnes of wheat, an average of roughly $260 a tonne including freight, although freight from nearer countries such as France and Romania.)

'Stepping off a darkened staircase'

With Thursday's weekly US export sales data reasonable too, "exports steering away from a very weak path are good news," said CBA's Tobin Gorey.

But the statistics are "more support than a reason for an extended rally. The rally might be partly relief – like finally stepping off a darkened staircase to the floor,"

On the supply front, there remain concerns over dryness in the US southern Plains, and in some areas of Russia, which is on for a grains harvest of 85m-95m tonnes this year, according to Ikar, which termed its forecast moderately optimistic.

Russia's farm ministry on Thursday pegged the country's grain exports in 2015-16 at "no more than" 28m tonnes, without giving a reason.

Among soft commodities, cotton failed to extend its rally, easing 0.1% in New York to 61.76 cents a pound for March delivery, after a recovery in the last session fostered by another week of strong US export sales.

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