(Agrimoney) – The rediscovered strength with which grain markets ended last week carried over into this one.
And it had little to do with the strong US jobs data at the end of last week which fostered a strong performance in Asian stocks – Tokyo shares ended up 4.0% – and, according to futures, will take New York shares to a record high later.
“There are three primary drivers of the corn and soybean market right now – weather, weather, and weather,” said Darren Frye, chief executive of ag advisory group Water Street Solutions.
And the outlook for the key growing area of the US Midwest has returned to a hotter and drier stance, more threatening for yields.
“There is no doubt that there is going to be a significant heat ridge which will begin to develop late in the six-to-10 day forecast period,” said weather service WxRisk.com.
“Most of the model data shows it becoming a heat dome by day nine-10. Undoubtedly this is going to be the focus of a lot of attention over the next seven to 10 days.”
‘Potential for hotter conditions’
OK, there is no need for farmers to panic
“Before we get to that [heat], it must be kept in mind that there is a lot of rain coming for good portion of the upper plains and the western Corn Belt,” WxRisk.com said.
Furthermore, “the heat dome is not going to be situated in the ideal location for prolonged heat and dryness over the upper plains and the Midwest,” and will likely slip away west towards the Rockies.
However, there was cause for investors to reinject some of the risk premium from futures withdrawn in the early-July price tumble, as US weather forecasts turned benign.
“Market chatter has returned to the potential for hotter conditions in late July,” said Madeleine Donlan at Commonwealth Bank of Australia.
‘Wasde update looms’
Still, while weather may be the primary driver of markets at the moment, it is not the only one.
In a negative to prices, the dollar gained 0.3% against a basket of currencies as of 09:20 UK time (03:20 Chicago time), making of exports dollar-denominated assets, such as many ags, more expensive.
And then there is the prospect of Tuesday’s key US Department of Agriculture Wasde report, on world crop supply and demand, to factor in.
“Tomorrow evening’s Wasde update looms, with the market expecting an upward revision to US soybean inventories,” CBA’s Madeleine Donlan said, with forecasts for US corn and wheat stocks seen being upgraded too.
‘Selling likely overdone’
Nonetheless, the weather outlook ruled in early deals, with the worsened Corn Belt forecast helping corn futures for December gain 0.7% to $3.65 a bushel, although still remaining below their 10-day moving average, surrendered three weeks ago as the market tanked.
“The past three weeks have been devastating to the corn market,” said Water Street Solutions’ Darren Frye, adding that selling “is likely overdone for now until the trade gets a better handle on late July and August weather”.
Soybean futures for November gained 0.8% to $10.66 ½ a bushel, shying away earlier from a test of their 50-day moving average, at a little over $10.80 a bushel.
Mr Frye flagged the potential for a “nervous marketplace” in soybeans, “because of the tight current supplies and the Chinese demand – coupled with the likelihood for more South American acres to move from soybeans to corn as we move into their planting season this fall”.
Commentators, including Monsanto, have forecast a 20% surge in Argentine corn sowings, for instance, an increase which would come largely at the expense of soybean plantings.
‘Pleased with yields’
Wheat futures proved less buoyant, with Chicago’s best-traded September contract gaining a more modest 0.3% to $4.36 ¼ a bushel.
Kansas City hard red winter wheat for September fell by 0.5% to $4.19 ¼ a bushel.
But then, the drier US outlook is good for progress of the winter wheat harvest, which is indeed coming up with decent results, for quantity especially.
“Producers continue to be pleased with yields, which generally range from 40-60 bushels per acre (2.7 to 4.0 tonnes per hectare),” said US Wheat Associates, speaking of hard red winter wheat.
On quality “the average test weight continues to be very good this week, but has been slightly reduced by recent rain to 61.1 pounds per bushel (80.4 kilogrammes per hectolitre) compared with 61.4 pounds per bushel last week.
Still, falling number improved to 384 seconds from 379 seconds, and the protein result added 0.1 points to 11.2%.
Speculative positioning
Indeed, on the negative side for prices, huge US, and world, supplies of wheat mean the grain having to continue to price itself into feed rations to get stocks down, and hard wheat had rebuilt its premium over corn as of Thursday to $0.73 ¼ a bushel, from $0.42 a bushel in late June.
Still, the question as to whether wheat futures have discounted market negatives came into focus after data on hedge fund positioning showed the net short in Chicago wheat at more than 100,000 lots as of last Tuesday, not far from the record high of 111,409 lots set in May last year.
Is appetite for short positions now spent?
“This short position should provide price stability and sets the market back up for short-covering rallies on headlines,” Mr Frye said.
Indeed, the relative weakness in Kansas City prices may be down in part to the fact that the speculative net short in the contract, at 16,819 lots as of last Tuesday, is still well short of March’s record above 27,000 lots, giving more scope for selling before the holding looks “top heavy”.
‘Increasing stress’
In New York, cotton futures for December gained 0.7% to 66.29 cents a pound, helped too by the US weather outlook.
“The US southern Plains and west Texas are being impacted by hotter-than-average temperatures,” Madeleine Donlan said.
“Forecasters say the weather pattern is likely to continue this week, bringing increasing stress to cotton crops.”
Prices also gained continued support from Friday’s data showing US weekly export sales of 201,900 running bales for upland cotton, a more than tripling of the previous week’s figure.
Palm up
Meanwhile, in Kuala Lumpur, palm oil for September gained 0.8% to 2,258 ringgit a tonne, albeit only after hitting 2,217 ringgit a tonne earlier, the lowest in nine months for a benchmark contract.
Prices were helped by, besides the firmness in the soy complex, with Chicago soyoil for December up 0.7% at 30.99 cents a pound, better dasta for Malaysian exports.
Malaysian palm oil shipments for the first 10 days of July rose by 5.2% month on month according to ITS, and by 8.8% according to rival cargo surveyor SGS.
