AM Markets: Why The Huge Open Interest In Grain Futures?

October 26th, 2017

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Category: Grains, Oilseeds

Corn showing gains(Agrimoney) –  If that double bottom chart pattern in wheat is indeed to boost prices, well, its positive tendencies remained in disguise in early deals.

Not that the futures were trading heavily lower in early deals, shedding just 0.1% to $4.53 ½ a bushel in Chicago for December delivery, as of 09:40 UK time (03:40 Chicago time).

Signally, they remained – just – above their 10-day moving average, at $4.35 a bushel, offering some hope against a fresh wave of sales that headway in the last session encountered.

‘Still find plenty of sellers’

“The market did find a seam of selling at the day’s highs,” said Tobin Gorey at Commonwealth Bank of Australia.

“We expect the market to still find plenty of sellers when prices rise,” raising a threat to the idea of a double bottom in the chart indeed proving as bullish as some hope.

US broker Benson Quinn Commodities said that “I am inclined to believe these markets will stay rangebound and will move lower from the current levels.

“With the winter wheat’s trading near mid-range, the objectives are Tuesday’s high [$4.60 ¾ a bushel] on the upside and $4.20 a bushel on the downside.”

Winter wheat sowings

One intriguing factor is the rising open interest (ie live contracts) in wheat futures, close to a five-year high, despite what might appear limited prospects for price moves, with the high stocks a depressant to values, but with support from the fact that they are already historically soft.

Ineed, on the most positive aspect for prices, there are ideas of winter wheat sowings for the 2018 harvest falling in the US, expectations only boosted by the slow pace of seedings in Plains hard red winter wheat areas.

Terry Reilly at Futures International said that “there is little incentive for US producers to expand the winter wheat area given poor economics and price relationships” with sorghum and corn.

“US hard red winter wheat plantings this season may end up lower than last year,” Mr Reilly said, if adding that “soft red winter wheat area might be up a touch”, with Midwest sowing conditions more favourable.

That said, weather for sowings in some other areas has been less negative, with Agritel saatying that “climatic conditions are still appropriate for plantings in Europe, including the Black Sea area where beneficial rains are easing the [soil moisture] deficit”.

In the Black Sea region, “favourable conditions during plantings have allowed farmers to progress rapidly with fieldwork before winter.”

Huge open interest

Back on the open interest theme, that in Kansas City hard red winter futures, up 3,568 lots on Wednesday at 306,542 contracts, is reportedly the highest since at least 1995.

“This is interesting to see given the poor US hard red winter wheat basis and lack of US export participation in global trade,” Futures International’s Terry Reilly said.

More on exports will be known later, with data expected to show US all-wheat export sales last week at 300,000-500,000 tonnes, allowing some retreat from the 615,432 tonnes the week before.

For now, Kansas City wheat futures for December rose by 0.25 to $4.32 ¾ a bushel.

‘Just too much corn’

For corn, the data are expected at 800,000-1.20m tonnes, at beast coming close to the previous week’s total, and investors did not appear to be betting on a bumper figure, with Chicago futures for December easing by 0.1% to $3.50 ¾ a bushel.

“Weak fundamentals continue to weigh on the price action. Just too much corn around the globe,” said Benson Quinn Commodities.

That said, prospects look poor for the US harvest picking up its weak pace, given cold weather which was expected to bring snow overnight to the northern US, and with cool weather ahead further south too.

‘Slow harvest progress’

“West Texas freezes are likely Saturday morning with middle and upper 20s degrees Fahrenheit expected in north western counties of west Texas, while upper 20s and lower 30s occur in southern areas,” Mr Reilly said.

“The bottom line for the US will be slow harvest progress in the Great Lakes region for the next 10 days due to frequent precipitation.”

He added that across the western Corn Belt, “corn needs to dry down before producers collect their crop. The cool weather pattern will slow drying rates”.

‘Big number is typical’

For soybeans, a harvest slowdown is less of an issue given that so much of it is already in the barn, with farmers focusing their efforts on the oilseed given relatively high prices compared with corn.

As for last week’s US export sales, they are expected to come in at 1.20m-1.60m tonnes, at least matching those of the previous week.

That said a “big number is typical at this juncture in the marketing year”, said Benson Quinn Commodities, adding that “I don’t expect any surprise to the high side to offer much support while a disappointing number would likely send market lower”.

‘Contract lows set daily’

Still, Chicago soybean futures made some headway in early deals, adding 0.1% to $9.76 a bushel for November delivery, and this despite too a further drop in prices in China, the top soybean-importing country.

There, the January contract set a fresh contract closing low of 3,642 yuan a tonne, a drop of 0.2% on the day.

“One thing many traders continue to focus on are the contract lows set daily by Dalian soybeans,” said Tregg Cronin at Halo Commodity Company.

“The soybean stocks piling up at ports along with new crop soybeans being harvested in China are contributing to a short-term supply build.”

Another factor traders will be focusing on is Brazilian weather, and the prospect of further rains to ease dryness concerns for soybean sowings.

‘Strong export sales’

In the cotton market, meanwhile, it is the potential for cold weather in Texas, the top US producing state, which continues to concern traders.

“Weather forecasters continue to expect very cold temperatures through much of the west Texas cotton region on Friday and Saturday,” CBA’s Tobin Gorey said.

“Forecasters expect the coldest temperatures on Saturday.”

Louis Rose at Rose Commodity Group forecast that US export sales last week would “again be relatively strong, with additional business from the recent ICA meeting likely to be evident”.

However, he also noted that the cotton market “is now trading well above levels where such sales were conducted”, limiting the support large data would provide to prices at current levels.

New York cotton for December stood at 69.15 cents a pound, down 0.2% on the day, but up some 3% week on week.

 

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