Grain futures stand, relatively, firm against Greek jitters

(Agrimoney) – What does Greferendum, and the great risk of Grexit, mean for grain futures?

If markets had showed the same reaction as they did during the world financial crisis, that would have a meant “risk off” trading – higher prices of haven assets such as gold and the dollar, and lower values of risk assets, eg shares and commodities.

But that wasn’t quite how the Greek crisis played out in markets in early deals on Monday.

OK, shares indeed sank, by some 2% in opening trades in London, and some 4% in Frankfurt and Paris, after losses of 2.9% in Tokyo, 2.2% in Sydney and of (a further) 3.6% in Shanghai, which looked like closing below its 100-day moving average for the first time in nearly a year.

And the euro was down 0.6% against the dollar as of 09:30 UK time (03:30 Chicago time).

But the dollar itself was down 0.7% against a basket of currencies, with the yen in particular strengthening, despite some mixed Japanese economic data, showing industrial production down 2.2% month on month in May, but retail sales growing at their fastest monthly rate since September.

A weaker dollar improves the competitiveness of dollar-denominated assets, including many agricultural commodities, to buyers in other currencies (although not, in this case, to eurozone importers).

‘Continued crop deterioration’

The easier dollar helped shield grains a little from the macroeconomic jitters, as did weather concerns for crops, which remain elevated despite some retreat in expectations for US rains this week, at least in some quarters.

At Global Commodity Analytics, Mike Zuzolo said that US maps for rainfall ahead “are drier” than they were ahead of the weekend.

“But are they dry enough? While the Sunday model runs are not nearly as wet as Friday’s updates going into the grain market close, it is still enough to create continued crop deterioration,” he said.

Besides, for southerly Midwest areas, below the I-70 highway, “a wetter bias… suggests to me that soft red winter wheat futures should continue to find price strength, if the market continues to keep weather as its major price driver”, with the moisture slowing harvest.

Widespread concerns

MDA said that Midwest weather prospects for this week were actually “unchanged” from Friday, summed up by the idea that “continued abundant showers in central and southern areas will maintain wetness concerns and some flooding”.

In fact, the MDA global weather map makes for worrying reading, in showing crop deterioration in a number of geographies, such as Europe, for rapeseed and wheat, the former Soviet Union, for wheat, China for corn and soybeans, and even Brazil’s safrinha corn crop, which has been seen as coming in huge, showing up as tested by conditions.

In Europe, “rain will remain limited this week – temperatures will continue to warm in western areas,” the weather service said, while saying that in the former Soviet Union “dryness will continue in north western Ukraine, Belarus, and central Russia”.

This is seen by some investors as a concern for spring wheat, rather than close-to-harvest winter wheat.

“The main area of concern is central Russia and Kazakhstan where it’s been hot and dry, seriously affecting the spring wheat grown in the region,” said traders at a major European commodities house with substantial interests in the former Soviet Union.

‘Threaten the development’

Still, MDA’s map saw improvement for Australian wheat, although there are doubts as to how long the benefit from recent rains will last.

“Australian grain regions got very little rainfall over the weekend and weather forecasters expect largely dry conditions to continue this week,” said Tobin Gorey at Commonwealth Bank of Australia.

And then there is Canada, where MDA said that “rains in central Alberta and central Saskatchewan mid-week will improve moisture slightly”.

That said, Mr Gorey noted that while weather forecasters “were expecting some light relief from dry conditions over the weekend”, it looked like “there was not even that”.

And ahead, forecasters “continue to expect Canada’s Prairies to dry further this week and so threaten the development of spring wheat crops”.

Data later

Minneapolis-traded spring wheat for September eased, but by only 0.25 cents to $6.08 a bushel, earlier touching a five-month high of $6.15 a bushel.

The contract remained well above the 200-day moving average it broke through in the last session for the first time since before Christmas.

Chicago soft red winter wheat, the world benchmark, was down 0.4% at $5.65 ½ a bushel, with some profit-takin kicking in on gains from the last session despite the prospect of US Department of Agriculture data later (after the market close) showing a continued slow harvest of the type, which is grown in the Midwest, the epicentre of US wetness concerns.

The data are expected to show a “brisk pace” of harvest for hard red winter wheat, “expected to be 30%- 35% complete, while rain delays are expected for the soft red winter wheat harvest”, said CHS Hedging.

‘Deteriorating from frequent rain’

At Chicago-based Futures International, Terry Reilly said that the “quality of the US winter wheat across the Midwest is deteriorating from frequent rain, and above normal rainfall for corn and soybean fields are raising concerns over drowning [crops] and fertilizer run-off”.

Indeed, corn did better than wheat, also helped by the prospect of the USDA data showing a, potentially large, drop in the condition of the US crop

“We look for US crop conditions for corn and soybeans [to] decline 2-4 points” in terms of the proportion rated “good” or “excellent”, Mr Reilly said.

“Winter wheat conditions are expected to fall 1-2 points and spring wheat could be unchanged.”

‘Quick drop in rating’

At Benson Quinn Commodities, Nicholas Sax said that, for corn, “the quick drop in conditions rating has undoubtedly pushed analysts to lower their yield expectations”.

Corn futures also had some help in, for the best-traded, new crop December lot, closing above their 100-day and 200-day moving averages in the last session for the first time in three months.

“December corn broke through the long term resistance of $3.86 a bushel and closed above the old high of $3.95 ½ a bushel,” CHS Hedging said.

The contract rose a further 0.4% to $4.03 ½ a bushel, while the old crop September lot added 0.3% to $3.93 ¾ a bushel.

‘Large supply’

Soybeans, meanwhile, eased by 0.3% to $9.83 ¼ a bushel for the best-traded, new crop November contract, while the old crop July lot added 0.3% to $10.05 a bushel.

The extent of rises in soybean futures earlier in the month on wetness fears has reduced appetite for further purchases a bit, besides provoking profit-taking on long soybean-short corn spreads.

Besides, fellow oilseed canola, which has been a strong performer of late, was lower, easing 0.4% to Can$521.60 a tonne in Winnipeg despite the Canadian weather worries.

While the Prairies dryness “does presage tighter supply” of the oilseed, “canola prices can only rise so far while the large meal and vegetable oil supply picture remains comfortable”, Mr Gorey said.

‘Useful rain’

New York cotton also dropped, easing 0.3% to 67.30 cents a pound for December delivery.

But then here, US rains are proving more useful, given dryness worries that had been mounting in the South East.

“South eastern cotton crops received mostly modest, but nonetheless useful, rainfall over the weekend,” Mr Gorey said.

“Weather forecasters expect that region to get more useful rain early this week that can take most of the region off the watchlist.”

‘Generally favourable’

At the Rose Report, Louis Rose said that “weather conditions across the US are expected to be generally favourable for cotton development over the near term with mostly dry conditions expected over the western and south western states and scattered thunderstorms over the mid-southern and south eastern states”.

He added that “internationally, weather conditions over central south Brazil, Argentina, Paraguay and Australia are expected to be mostly favourable for harvesting operations over the near-term”.

On the demand side, cotton, as an industrial commodity, is often more prone than other crops to macroeconomic jitters.