(Agrimoney) – OK, there are many reasons to be bearish on grain prices.
As ADM Investor Services said, given that Tuesday’s benchmark US Department of Agriculture Wasde report and current crop weather conditions are ” seen being non-bullish at the current time, a somewhat sideways to lower bias for price direction is seen for a trend.
“Everything else being equal, it would appear at this juncture it would be something adversely weather related to stir the pot in seeing any type of a sustained rally attempt.”
Futures appear “capped” at about $5.00 a bushel for Chicago wheat, $4.00 for corn and $10.00 a bushel for soybeans, “the downside being defined by world export competition price levels” and factors such as the progress of US summer crops, the broker said.
And there are other downbeat dynamics too, such as the continued outbreak in the US of bird flu, spelling flock liquidations and undermining feed demand.
“The row crop markets can’t shake the avian flu as a confirmed case at an operation in Nebraska has taken the total cull to over 30m birds,” Benson Quinn Commodities said.
‘Fully discounted?’
Still, futures actually showed modest gains on Wednesday, albeit staying well below the caps that ADM Investor Services laid out, with one frequent idea that prices at current levels have factored in a stack of bearish news, at a time when it is still early in the growing season for spring crops.
In wheat, for instance, “is bearish news fully discounted?” asked Richard Feltes at RJ O’Brien.
“Or will fire sale former Soviet Union and European Union wheat prices drag entire grain complex lower?”
The latter point rose up the agenda with an acknowledgement by France, the European Union’s top wheat producer and exporter, that Russia’s lifting of its export tax, maybe this week, poses a potential threat of heightened market competition.
‘Diseases are cropping up’
Furthermore, the picture of benign weather for wheat is looking a little past its best.
Benson Quinn Commodities said that while for the US “weather is generally viewed as favourable, another round of heavy rains through northern Texas and central Oklahoma would only be a detriment to production/quality in those areas”.
At Martell Crop Projections, Gail Martell said that “rainfall in the southern Great Plains has become excessive causing widespread flooding in Oklahoma and Texas.
“Diseases are cropping up in a warm and humid environment.”
In Canada, Benson Quinn noted that “portions of western Saskatchewan and much of Alberta will be watched for meaningful rainfall over the course of the 10 days to two weeks, as these areas have been slighted on moisture early in the season”.
In Australia too, CHS Hedging flagged that while for winter grains “planting progress is ahead of normal, some areas are reporting dry conditions”, a prospect which backs ideas of the EL Nino declared on Tuesday.
Winners and losers
Still, if any investors were still in two minds about whether to push wheat prices lower again, the dollar came to bulls’ aid by tumbling 0.9% against a basket of currencies, as disappointing US retail sales data spurred ideas that US interest rates will not be raised for some time.
(A weaker dollar improves the affordability of dollar-denominated exports, such as many agricultural commodities, for buyers in other currencies.)
Chicago soft red winter wheat for July gained 0.2% to $4.81 ½ a bushel, while Kansas City hard red winter wheat for July closed up 0.5% at $5.07 ¾ a bushel.
Minneapolis spring wheat for July actually did best, helped by the Canada dryness fears, gaining 0.9% to $5.41 ½ a bushel.
That was a marked outperformance compared with Paris milling wheat for December, the best-traded lot, which ended down 1.1% at E173.25 a tonne, back below its 10-day moving average, dented by the French export cloud and a jump of 1.2% in the euro against the dollar.
London wheat for November ended down 1.4% at £117.55 a tonne, hurt by strength in sterling against the dollar, following the Conservatives’ election victory, with slugging UK wheat trade data doing little to help either.
Earlier, the lot hit a contract low of £117.35 a tonne.
Ethanol help
The weak dollar helped Chicago corn make gains too, ending up 0.3% at $3.62 ¼ a bushel for July delivery.
Not that there are worries for US corn weather-wise, with MDA saying that “additional rains in western Midwest areas will continue to improve moisture for germination”.
But on the demand side, news from the ethanol market was improved, with US production of the corn-based biofuel last week up 25,000 barrels a day to 912,000 barrels a day.
US ethanol inventories, meanwhile, fell 463,000 barrels to 20.3m barrels, indicating demand for this output.
That said, gains in ethanol itself were modest too, up 0.3% at $1.645 a gallon for June delivery.
‘Lack of producer selling’
Furthermore, there is some idea of US farmers, busy with spring sowings, holding off still from selling corn, prompting a short-term squeeze, at least, in physical supplies.
“The cash market does, at times, reflect some reaching for near-term supplies due to a lack of producer selling,” Benson Quinn Commodities said.
“Once planting is completed, how long the producer holds out on old crop sales becomes the question.”
Data ahead
Soybeans showed small gains too, ending up 0.2% at $9.57 ¼ a bushel in Chicago for July delivery.
The increase came despite a 600,000-tonne upgrade to 59.6m tonnes in the Rosario grains exchange’s estimate for the Argentine harvest.
The USDA on Tuesday pegged the crop at 58.5m tonnes, in a Wasde which held out the prospect of huge domestic and world supplies at the close of 2015-16.
“The soybean market is tasked with being able to hold the lows of early April in the face of ample domestic and global supplies and what appears to be a good start to new crop production,” Benson Quinn Commodities said.
Still, soybeans were helped by firmness in soyoil, which added 0.7% to 33.24 cents a pound, and from expectations that the NOPA figure for the US crush will show the best ever April figure, of 147.827m bushels.
‘Plenty of sugar’
Among soft commodities, the weak dollar helped cotton futures for July rose by 1.2% to 65.77 cents a pound in New York.
But sugar struggled, in part because the Brazilian real fell even against a dropping dollar. That cut the value, in dollar terms, of assets in which Brazil is a big force.
Furthermore, as Kingsman reminded on Tuesday, sugar supplies for now are more than adequate.
“The medium-term perspective still seems to favour the sugar bears at present with ‘plenty of sugar’ going to be available,” Sucden Financial said.
Indeed, many analysts are lifting expectations for the Brazilian Centre South cane crop, and sugar output, this season.
Datagro, for instance, pegged the region’s cane crush at 591m tonnes of cane, and sugar output at 32.2m tonnes, up from a previous forecast of 32m tonnes.
Raw sugar for July ended down 4.6% at 12.96 cents a pound, with technical factors encouraging selling too, after the contract baulked at climbing for long above its 75-day moving average for the first time in nearly four months.
