(Agrimoney) – “Wheat prices are trying to find a bottom,” Minnesota-based broker CHS Hedging said.
And Chicago wheat futures looked, in early deals, like they were finding increasing success in building a base just below $5.00 a bushel.
Chicago’s December contract made small gains, looking for what would be a third positive session in four, and seeking a close over its elusive 40-day moving average, which has provided something of a technical ceiling.
The lot has touched the line four times since the start of last week, but failed to close over in two months.
Dollar flat
Assistance for the contract came in part from the dollartaking a breather, trading flat against a basket of currencies, after gains totalling 1.9% in three sessions.
A softer greenback improves the competitiveness of dollar-denominated exports, including many agricultural commodities.
And whether there is a broader move by investors into commodities, with the El Nino baring more of its teeth, and the not unlikely prospect of a La Nina next year, which would be altogether worse for world grains production…
Certainly, all the main Chicago ag contracts were higher, despite some downbeat factory data from China, a huge importer of commodities.
Caixin/Markit’s purchasing managers’ index for manufacturers sank to 47 in September from 47.3 last month and representing the lowest level since April 2008.
‘Experiencing dryness’
For wheat, there were specific factors helping the grain too, including the reviving concerns over dryness in Australia, ahead of the harvest late in 2015.
“Some growing areas of Australia have been experiencing dryness,” said CHS, if adding that “at this point the crop is still estimated to be between 24-26m tonnes”.
Still, talk of a 27m+-tonne crop, which was around last week, has gone quiet, with the onset of a dry spell which many had feared setting in earlier in the year given the onset of El Nino, which has a habit of meaning low rainfall in eastern Australia.
Sydney vs Chicago
Rabobank said that “long-range weather forecasts indicate that, while there is a chance of rain in late September and into early October, there is no promise of a good spring rain”, which is needed for filling kernels and maximising yield potential.
“After a good start to the season across most of Australia’s cropping regions, a dry spring would curtail yield potential,” the bank said.
Indeed, it highlighted that Australian wheat prices, while they have lost some premium against Chicago ones, “remain elevated” in comparison, amid “lingering concerns of an El Nino”, besides ideas of strong domestic demand in the east of the country.
Sydney wheat futures for January added 2.1% to Aus$282.80 ($199.17) a tonne, equivalent to $5.42 a bushel, rebuilding that premium against Chicago values.
Former Soviet Union dryness
Also supporting wheat prices was the emerging concern over dryness in the former Soviet Union too, amid the autumn sowings window, albeit with many parts of the region having a few weeks yet before the window closes.
Weather service Commodity Weather Group estimates that about half of Ukraine wheat area is experiencing serious top soil dryness, with the figure for Russia at about 25%.
And the forecast remains pretty dry for the next two weeks at least.
“In total, there are concerns on wheat production in about 35% of the former Soviet Union, which is the largest wheat exporter in the world,” said Tregg Cronin at Halo Commodity Company.
Chicago wheat for December stood up 0.8% at $4.99 ¼ a bushel as of 09:30 UK time (03:30 Chicago time), 3 cents above its 40-day moving average.
‘Harvest will break wide open’
And its Chicago peers were firm too, including corn, which added 0.7% to $3.83 a bushel for December delivery, in contravention of what many had expected would be a weak period for the oilseed, with the US harvest gathering pace.
This week, “the US Midwest will see nearly ideal harvesting weather,” said Terry Reilly at Futures International.
Halo’s Tregg Cronin said: “Weather forecasts continue to suggest harvest will break wide open in coming days, bringing the second largest corn and soybean crops on record to the farm and town in a very short amount of time.
“If drying the crop isn’t an issue, bushels will be looking for homes and the transportation system will become strained given the largest old crop corn carryout since 2005-06, and the largest soybean carryout since 2006-07.”
‘Lower South America acres’
Still, Steven Freed at ADM Investor Services said that early yields from the US harvest “continue to be a little lower than expected and last year”.
And he noted that the corn market “is still trying to balance the lower US export pace and harvest pressure versus talk that the crop may be a little lower than USDA estimates, and farmer selling remains slow.
“Talk of lower South America 2016 acres could also be supportive,” he added although, as analyst Michael Cordonnier has pointed out, in Brazil at least, the ramp up in soybean sowings expected at 3% plus will not necessarily come at the expense of corn plantings.
OK, farmers may switch first crop corn, also being seeded now, to soybeans.
But they may well ramp up area of safrinha corn, planted as a second crop, earlyish in the calendar year on land vacated by the soybean harvest,
(Safrinha corn comes with risks, notably of the Brazilian wet season ending early, which would more likely if La Nina indeed comes hard on the tail of El Nino, but that is another story.)
Big deal?
Soybeans themselves for November delivery gained 0.8% to $8.68 ¼ a bushel, helped by corn, and by some weather concerns for early Brazilian sowings too, with weather too dry in top producing state Mato Grosso for farmers to risk planting much.
With temperatures reaching around 100 degrees Fahrenheit, there is a big risk of crops struggling if soil moisture reserves are not high enough.
Meanwhile, on the demand side, there is a widespread expectation that a Chinese delegation to the US will on Thursday sign a large so-called “frame” contract on soybean imports.
And the oilseed received particular support from Chicago soyoil, up 1.0% at 26.61 cents a pound for December delivery, in turn underpinned by palm oil, which soared 2.2% to 2,233 ringgit a tonne in Kuala Lumpur.
Earlier palm oil touched 2,235 ringgit a tonne, the highest for a benchmark contract since early July, gaining support from a weaker ringgit and by ideas that El Nino-induced dryness in South East Asia, besides smog stemming from slash and burn agriculture, may depress yields ahead.
