Grains rally pauses, awaiting signals on funds

June 3rd, 2015

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Category: Grains, Oilseeds

SoybeanCorn450x299Low50(Agrimoney) – The last time wheat managed a surge in prices – last month, on southern US Plains weather fears – the rally faltered after hitting 7%.

Which is about what Chicago wheat futures for July gained in the first two session of this week.

Can the grain build a more sustained rally this time?

The contract in early deals was showing a gain, but of a modest 0.3% to $5.14 a bushel as of 09:50 UK time (03:50 Chicago time).

This would be a third successive day of price gains, which traders see as often being the pattern when price reversals kick in.

However, one big threat to further headway is that investors appear, so far, to lack of the kind of explanations for rising wheat prices which might spur longer-term gains, and persuade funds this time to close their hefty short positions in the grain – for good.

‘Pointing towards higher prices’

The dollar of course, in weakening 1.6% on Tuesday against a basket of currencies, offered a large incentive in the last session to become more upbeat on dollar-denominated exports, which become more competitive as the greenback weakens.

And, from a technical perspective, Chicago’s July contract scored a big positive in the last session by breaking back above a clutch of moving averages, including the 100-day line.

Trade above the 100-day has proved elusive for the contract so far in 2015.

Then Terry Reilly at Chicago-based broker Futures International said that “beginning-of-month positioning was noted” in Chicago wheat in the last session, with new months having a reputation for bringing fresh cash into grain markets.

Meanwhile, at Benson Quinn Commodities, Brian Henry said that “momentum studies in the wheat market are pointing towards higher prices before the correction is over”.

‘Fundamentals remain cumbersome’

However, from a fundamental supply and demand side, traders appeared somewhat stumped to find compelling reasons for support to prices.

OK, “dry conditions in western Canada are raising more concerns as forecasts tend to stay on the dry side,” Mr Henry said, also noting that “the relatively dry weather profile for the western Ukraine and south western Russia is also drawing some interest.

“Conditions through the North China Plains are also reported as dry.”

 

However, the “dry conditions in western Canada, the European Union and portions of Russia provided a base of support, but wouldn’t have triggered the moves of the last couple of days” in wheat futures.

CHS Hedging was even more dismissive of weather threats, saying that “world fundamentals remain cumbersome, with few weather concerns of any major consequence evident”.

‘Traders still in the dark’

Still, one fundamental factor that may be provoking a bit of risk premium to be put into prices is the uncertainty over what will emerge from the nascent southern Plains wheat harvest, as Agrimoney.com reported earlier this week.

While the US Department of Agriculture has reported only a small decline in overall US winter wheat quality over the past couple of weeks, there are always doubts before the crop is actually cut as to what lies in store.

“Traders are still in the dark whether or not the heavy rainfall damaged hard red winter wheat across Texas to Oklahoma and parts of the western Delta,” said Futures International’s Terry Reilly.

Mr Henry said that “the likelihood of quality issues should offer resistance” to downward movement in prices, “while the possibility of some actual production issues is yet to be accessed”.

Besides, while harvest usually brings pressure on prices, as farmer sales soar, this time, at prices still relatively low, “I am not convinced the producer is going to be a willing seller”, Mr Henry said.

Area doubts

With wheat extending its headway, that offered some scope for gains to fellow grain corn too, which for July edged 0.1% higher to $3.59 ½ a bushel.

USDA data on Monday disappointed in showing US corn crop condition holding steady at 74% rated “good” or “excellent”, still a strong rating, but behind for instance the 76% a year ago, and providing extra justification for ideas of a retreat in yields from last year’s record high.

Furthermore, the weakness in prices of late is provoking concerns that farmers may not struggle too hard to get completed their late plantings, which will have lower yield potential than crop seeded within the ideal sowing window, seen as closely largely in mid-May.

“The once-early pace of planting favoured an acreage increase, which may be offset by the appetite to lose money on late planted corn,” Mr Henry said.

Corn vs soybeans

In fact, the incentive is more there to plant soybeans, in that the key November soybean: December corn futures ratio, a key guide to the relative appeal of the crops in spring sowings programmes, stands at a relatively high 2.43:1.

Still, there have been some setbacks from recent rains to planting of the oilseed, which has a slightly later seeding window than corn, with US data showing average sowings progress.

“Soybean planting delays were in the chatter on Tuesday, with wetness being the culprit and a wet forecast looming ahead,” said CHS Hedging, adding that “concerns aren’t huge but being discussed”.

Record South American exports

Still, hedge funds, which held a record net short position in soybeans as of last week, were not falling over themselves to cover these holdings, as appeared to be the case in wheat.

Soybeans for July were only 0.1% higher at $9.41 ¼ a bushel.

Oil World put a bit of a dampener on US prices by pegging South American exports last month at a record 13.2m tonnes, up 2.4m tonnes on May 2014.

And the soy products quietened down, after three sessions of volatility spurred by proposals for a raise US target for use of biodiesel (made from vegetable oils).

Soyoil for July was flat at 34.17 cents a pound, while soymeal for July eased $0.10 to $301.70 a short ton.

Palm oil showed more direction, downwards, dropping 0.5% to 2,303 ringgit a tonne in Kuala Lumpur, but only after strong gains previously this week

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