Grains extend headway on dollar weakness

March 19th, 2015

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Category: Grains

Wheat_Future_Dreams450x299(Agrimoney) – The dollar rebounded against a basket of currencies in early deals on Thursday.

But that wasn’t enough to prevent grain futures extending their rally late in the session.

Indeed, the 1.2% recovery in the greenback as of 09:20 UK time (04:20 Chicago time) only recovered part of the losses of the last session, which continued after the close of ag markets, and left the dollar 1.9% adrift.

(A weaker greenback boosts the value of dollar-denominated assets such as many commodities by making them more competitive.)

Extra shorts?

And this after the jump in open interest in futures in row crops, corn especially, earlier in the week which many analysts have presumed reflected fresh short positions.

The rise in open interest in futures in corn – the one of Chicago’s big three crops in which hedge funds had retained a net long position as of last week – slowed dramatically in the last session, to 6,538 lots, from a combined 60,000 over the first two days of the week.

Whether open interest will now fall as shorts are covered, well, corn futures for May managed a 0.5% gain to $3.76 ¾ a bushel, indicating buying pressure of some kind.

 Ethanol gains

Headway was helped by an early spurt in ethanol, of 3.2% to $1.502 a gallon for April delivery, albeit in thin volumes, despite some early softness in crude.

Maybe the weaker dollar was a particular comfort for ethanol bulls, after a report on Wednesday that the US has ordered a 30,000-tonne cargo of the biofuel from Brazil.

Whatever, it spelled higher margins for producers of the biofuel, after some OK data on Wednesday, showing US production rising a little, and stocks falling.

“This is the third week in a row of diminishing stocks and the fourth in the last five, which confirms the seasonal trend,” said Brian Henry at Benson Quinn Commodities.

Bird flu spreads

Not all the newsflow is positive, with bird flu still spreading through the US, boding ill for the country’s poultry sector, and thence for feed use.

The latest case was found at a turkey farm in California, although of a mild variety of the disease.

Still, on a more bullish note, CHS Hedging noted that for grains overall “early spring planting in the Ukraine is running behind last year’s pace -237,000 hectares planted so far versus 611,000 last year – giving concern to production declines”.

That said, there is a long way to go, with sowings last year at 7.6m hectares.

Brazil talks

Soybeans for May gained by 0.5% to $9.70 ¼ bushel, again finding support in the net dollar decline of the past two sessions, besides some concern of a revival of the Brazilian truckers’ strike.

“The latest meeting between the Brazilian government and truckers hasn’t resulted in demands being met,” CHS Hedging said.

“Many are expecting new protests and roadblocks to spring up again soon.”

Not, it has to be said, that all observers are so convinced, with Benson Quinn Commodities’ Brian Henry said that “Brazilian officials told the truckers still protesting that they would honour the concessions made in February, but aren’t going to make additional concessions.

“I didn’t see any response from the truckers, so I don’t look for any major snafus in the movement of product at this time.”

‘Aggressive purchases’

And, assuming no truckers’ strike, prospects look good for South America to tighten the reins on world soybean exports, as typically happens at this time of year thanks to the timing of the region’s harvest.

“Purchases out of South America for soybeans destined for China continue to be aggressive,” CHS Hedging said, with China foreseeing 2.93m tonnes of soybean imports this month, up from 2.57m tonnes in February.

At Futures International, Terry Reilly said that “Argentina producers picked up on selling old crop stocks after harvest season began this week”.

He also noted talk that, in the US, soymeal basis has “continued to break at selected locations on softening demand”, although that was not reflected in futures.

Soymeal for May was 0.8% higher at $323.30 a short ton.

‘Drier-than-desired weather’

As for wheat – which has been moving in something of a different orbit to the row crops, being greater pulled by weather factors given that winter crop is already in the ground in the northern hemisphere – it gained again too.

And the focus remained on Kansas City-traded hard red winter wheat, in part thanks to dryness in its US southern Plains growing area.

“Drier-than-desired weather in wheat country is a concern, although some light rains are in the forecast, thus wheat might find more buyers/short covering in the near-term,” Mike Mawdsley at Market 1 said.

CHS Hedging said: “Light rains in the southern Plains have been welcomed, but a lack of moisture north of I-70 will be an ongoing concern and crop conditions will be closely watched.”

Chinese order

However, there is a demand side to price support too, with a report that China has in the last week or so bought more than 550,000 tonnes of hard wheat to fill a void in domestic production of milling-grade grain.

It is said to have purchased 115,000 tonnes from the US, 150,000 tonnes from Australia and 300,000 tonnes from Canada.

There is a technical side too to the performance of Kansas City futures, after the May contract in this session bust above its 50-day moving average at $5.55 ¾ a bushel, although it has to be said they failed to stay there.

After hitting $5.62 ½ a bushel, the contract retreated right back to the moving average line, a gain of 0.5% on the day.

Premium expands

Still, that was better than Chicago-traded soft red winter wheat for May, which added 0.1% to $5.11 a bushel.

(For soft red winter wheat, grown in the Midwest, the talk is of too much rain, if anything, rather than too little.)

Kansas City wheat for May has now extended its premium over its Chicago peer to nearly $0.45 a bushel, roundabout a 2015 high, from $0.25 ½ a bushel a month ago.

Data later

As to how futures behave for the rest of the day, besides the progress of the dollar, much may depend on US export sales data for last week.

Wheat export sales are expected to come in at 350,000-550,000 tonnes for 2014-15, in line with the previous week’s figure 9445,178 tonnes), and with up to 100,000 tonnes sold for next season.

For corn, export sales of old crop are expected to improve from 417,969 tonnes last time to 500,000-700,000 tonnes, with a further 50-150,000 tonnes of new crop.

Soybean export sales are seen coming in at 250,000-450,000 tonnes for 2014-15, which would again be an improvement on the 167,939 tonnes last time.

New crop soybean sales are expected at 0-50,000 tonnes, in line with the 30,794 tonnes last time.

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