(Agrimoney) – The US Independence Day weekend has a record for sparking u-turns in grain price trends.
Often in winter wheat, for example, harvest pressure from prices begins to ease, with well over half the crop in the barn.
For corn, with July being a crucial month for yields, in bringing pollination to the Corn Belt, it can see futures reverse on markedly threatening or encouraging forecasts.
“Many times we can see large market pivots over this holiday,” one US broker said, flagging in particular the potential for further weakness in row crop prices.
“With the rally corn has had in the last two weeks, it wouldn’t surprise us to see more weather premium taken out of the market,” the broker said.
For soybeans, if noted that Oil World, the respected analysis group, “had a bit over the weekend that said the sharp rally in oilseed and product prices has ignored ‘bearish world supply fundamentals'”.
Harvest pressure overshadowed
Removal of risk premium was certainly the theme of grain markets in early deals (as was the removal of risk discount from many other risk assets, with ideas that Greece may be given a last chance to agree a deal with creditors allowing recoveries in many share markets).
For wheat, harvest pressure was actually at last telling on prices.
The weight of supplies from the US harvest has been of little consequence in pricing terms of late, with worries over delays caused by persistent wet Midwest weather, while dryness rings alarm bells for crops in the likes of Canada and the European Union, supporting futures.
However, US Department of Agriculture weekly crop progress data overnight showed harvesting making good progress in both many Midwest soft red winter wheat areas and in the Plains hard red winter wheat belt.
‘Catching up fast’
In the Midwest, for instance, Illinois farmers reaped nearly one-third of their crop last week, to take completion to 69%, while in the central Plains, the Kansas harvest also progressed by 31 points to 79%.
That is not to say that harvesting in all areas looked trouble free, with Ohio growers, for instance, only having 13% of their crop in the barn.
But the overall progress of the harvest, at 55% complete, was up 17 points week on week and reduced to 4 points its delay behind the average pace.
“The US winter wheat harvest is catching up fast,” said Richard Feltes at RJ O’Brien.
‘List of weather concerns remains’
OK, the condition of the US winter wheat crop unexpectedly declined last week, although by a modest 1 point to 40% rated “good” or “excellent”.
And there remain concerns over dryness in Argentina, Canada etc, and with some foreseeing more rains in the Midwest too.
“The long‑list of weather concerns remains,” said Tobin Gorey at Commonwealth Bank of Australia.
“Weather forecasters expect US soft red wheat regions to get frequent rain and remain too wet.
“Weather forecasters are expecting little or no relief in other wheat regions that are dry ‑ Canada’s Prairies, western Europe and the US Pacific North West.”
‘Look like a negative factor’
But another piece of data confirmed overnight, of huge short-covering by hedge funds of short holdings in Chicago wheat, with a record swing bullish in positioning, raised doubts over how much more support there would come from this area.
Indeed, Mr Feltes saw markets for corn, soybeans and wheat “feeling headwinds from the [hedge fund positions] report confirming massive managed fund short-covering”.
At Benson Quinn Commodities, Brian Henry said that “the positions are very manageable in all three markets”, adding that they “look like a negative factor to me”.
Mr Henry added that while the “upward momentum isn’t completely gone and would-be spec sellers may need the market to prove it isn’t going to rally… I expect to be trading lower values by the end of the week”.
Prices fall
Certainly, Chicago soft red winter wheat for September was 1.2% lower at $5.88 ½ a bushel as of 09:00 UK time (03:00 Chicago time).
Minneapolis-traded spring wheat for September was a little more resilient, easing 0.7% to $6.27 a bushel, after the USDA showed an unexpected decline of 2 points to 70% in the proportion of US spring wheat rated “good” or “excellent”.
While hardly a poor rating, it was well below the 73% figure that investors had forecast.
And, with Canada’s spring wheat tested by drought, the market is particularly sensitive to any ideas of threats to the US crop too.
‘Much-needed break’
Corn dropped too, by 1.4% to $4.20 ¾ a bushel for the September contract, and by 1.4% to $4.29 a bushel for the best-traded, new crop December lot.
The USDA crop progress data overnight were negative for values in seeing a 1-point rise to 69% in the proportion of the US crop rated “good” or “excellent”, rather than the 1-point fall expected thanks to the heavy Midwest rains.
“The rains over the weekend tended to stay away from the areas that are struggling with too much moisture, while also focusing on areas that could handle the moisture better or in some instances needed moisture,” Benson Quinn noted.
“The eastern Corn Belt received a much-needed break as large accumulations were south of Illinois, Indiana and Ohio.”
‘Less threatening’
As for the weather ahead, as corn enters the key, heat and dryness-sensitive pollination phase, well that is not looking too bad.
“The medium range and extended forecast are less threatening for corn acres as moisture and temperatures are expected to move into a more normal pattern,” Benson Quinn said.
CHS Hedging said: “While the yield may not surpass last year’s record yield, it still has the potential to be above average.”
And the potential for short position closing in corn is limited, after regulatory data showed a huge swing positive in holdings in the latest week – from a net short of 94,522 lots to a net long of 70,606 contracts.
‘Floor of support’
As for soybeans, the regulatory data showed a big swing positive in positioning on these too, by nearly 66,000 contracts, taking the net long to a one-year high of 67,596 lots.
Still, pressure on prices from the USDA crop progress report was a little lower.
OK, the condition of the crop remained stable at 63%, rather than falling to 61% as investors had expected.
But sowings, at 96% complete, were a touch behind expectations, and up only 2 points week on week, with the planting window near closed.
“With 3.5m acres of beans still to plant, and calendar and sunlight hours pushing up against optimal plant dates, beans could find a floor of support” on Tuesday, Benson Quinn said.
Soybeans indeed fell a more modest 0.8% to $10.13 ¾ a bushel for August delivery, and by 0.7% to $10.07 ¼ a bushel for best-traded, new crop November contract.
‘Off the watchlist’
In New York, cotton for December fell too, by 0.6% to 66.53 cents a pound, after the USDA data overnight showed further improvement in the condition of the US crop, rated 57% “good” or “excellent”, up 1 point week on week.
“The US Delta and South Eastern cotton crop regions saw enough rainfall over last few days to take it off the watchlist,” said CBA’s Tobin Gorey.
“Fundamentally, the US crop continued to be rated in fine condition,” said Louis Rose at the Rose Report, if flagging a slower pace of development in the crop.
Mr Rose also noted forecasts in India, the top cotton-producing country, that “monsoon activity this week is expected to be light over the central and southern interior portions of the country”.
