(Agrimoney) – Sometimes, when one commodities segment falters, another one gains, as investors swap contracts.
But while precious metals took a dent on Monday – with gold hitting five-year lows below $1,100 an ounce – grains certainly did not enjoy reciprocal buying, at least in early deals.
(Indeed, it looked like gold had become the latest target of Chinese selling, rather than there being any idea of investors switching commodities.)
Although one headwind to higher commodity prices, the rising dollar, abated, with the greenback easing 0.2% as of 08:20 UK time (02:20 Chicago time), the ideas of improved grain-growing weather hung around to keep a lid on prices.
‘Eased dryness concerns’
In the US Midwest, “somewhat drier weather in eastern areas this week will ease wetness concerns”, said weather service MDA.
Meanwhile, in Canada, “recent showers in the Prairies have eased dryness concerns” and “additional showers are expected this week”.
In Australia, “rains will ease dryness in Western Australia early this week”, MDA added, at a time when eastern Australian moisture has picked up too, contrary to ideas of El Nino-induced drought.
At Commonwealth Bank of Australia, Tobin Gorey noted that “weather forecasters expect another light rainfall event in eastern grain regions through the middle of the week”.
‘High vomitoxin and disease damage’
OK, all is still not hunky dory in world crop weather, with MDA noting that in Europe, the “forecast is unchanged – hot and dry weather will stress crops in south eastern areas”, although this is proving more of an issue for spring crops rather than winter ones, for which drydown could be a positive with harvest ongoing.
Back in the US, “showers in central areas will slow harvesting early this week”, at a time when the Midwest-grown soft red winter wheat crop is not in a great place.
“High vomitoxin and disease damage is hitting the early harvested soft red winter wheat very hard,” said CHS Hedging, vomitoxin being a toxic fungal residue (Don in Europe) which can in high enough levels leave grain unfit even for livestock consumption.
“Discounts are as high as $3.00 a bushel.”
‘Bin busting’
But that was not enough to persuade investors against removing further risk premium from wheat prices, especially when prospects for the spring wheat crop, grown in the northern Plains, are strong.
“Reports from growers in the Dakotas are indicating a bin-busting spring wheat crop,” CHS said.
“The weather has been very favourable and about the only thing the spring wheat needs is a little bit of heat to potentially help raise the protein content.”
At Minneapolis-based Benson Quinn Commodities, Nicholas Sax said that “the spring wheat crop looks outstanding in Minnesota and North Dakota, with outstanding yields expected across the board.
“Overall, huge crops in Manitoba and the US are going to help make up for drought-riddled Saskatchewan.”
‘Holding considerable length’
As an extra potential setback to grain prices, data late on Friday showed that hedge funds have hiked their net long position in futures and options in ags overall, to the highest in a year.
While indicating greater optimism by managed money over prices, the shift has also created scope for selling before shorting ags looks in any way a “crowded” bet, as it did a couple of months ago.
“The structure of the market leans negative as the funds over the last month have squared short positions and in some cases are now holding considerable length,” Benson Quinn’s Nicholas Sax said.
Soft red winter wheat for September stood 1.3% lower at $5.46 ¾ a bushel in Chicago, although maintaining its unusual premium over hard red winter wheat, which for September was down 1.4% at $5.38 ¾ a bushel, feeling extra pressure from a less troubled US harvest.
Data later
As for row crops, investors are waiting for USDA data later (after the market close) for evidence of whether the improved Midwest weather, from a spring crop’s perspective, has boosted crop condition.
Thinking of corn, CHS said that “with improving weather conditions yield prospects may start to improve.
“Even if Monday’s crop condition report does not show improvement, it should the following week if the forecast is correct into the end of July.”
For soybeans, Benson Quinn said that “crop condition ratings on Monday are expected to be unchanged to slightly better”.
Bumper Brazil harvest?
And South America is providing some bearish pressure too, from a strong Brazilian safrinha corn harvest, and from ideas of strong 2015-16 soybean sowings after all.
Terry Reilly highlighted an estimate from Safras & Mercado that Brazilian farmers could lift soybean area by 3.8%, “pumping the production to 99.8m tonnes.
“If realised, this would bearish. A month ago the talk was that Brazilian producers could plant fewer soybeans this year due to rising costs and financing issues.”
Prices drop
Meanwhile, there are ideas that US prices are strong enough to be attracting unusual imports too.
CHS Hedging highlighted “talk that three cargos of Argentine soymeal have traded in the US South East with a September/October delivery period”.
Chicago soymeal for August was down 1.1% at $357.20 a short ton, helping soybeans themselves for August ease 1.2% to $10.02 ¼ a bushel, staying just above their 200-day moving average, as well as the psychologically important $10-a-bushel mark.
November soybeans dropped 1.2% to $9.94 ½ a bushel.
Corn, meanwhile, fell by 1.3% to $4.15 a bushel for September and by 1.3% to $4.25 ¾ a bushel for the best-traded December contract, which earlier touched its 20-day moving average for the first time in a month.
Palm eases
Back among oilseeds, Kuala Lumpur palm oil returned on weak form after a long, holiday weekend.
The benchmark October contract was down 0.7% at 2,176 ringgit a tonne, after data from cargo surveyor ITS showed a continued decline in Malaysian palm exports, of 15.5% month on month as of July 20.
The rate of decline was running at 14.6% as of July 15.
