(Agrimoney) – Will a poor month for grain futures end on a weak note?
Month-ends have a reputation for bringing softer prices as funds close positions, a factor seen as fuelling the volatile behaviour of prices in the last session.
Richard Feltes at RJ O’Brien clocked “fear that the last trading day of July may trigger stepped-up fund redemptions”.
And it has to be said many investors may be quitting commodities given their dismal performance this month, with the CRB index looking poised for its biggest drop since September 2011. (The even worse performance of the S&P GCSI was discussed by Agrimoney.com on Thursday.)
Dollar headway
Still, in early deals at least, grains – which outperformed a declining CRB in the last session – maintained their grip on positive territory.
This despite some further appreciation in the dollar – which added 0.2% against a basket of currencies, so making dollar-denominated exports such as many commodities less affordable – and further weakness in Chinese shares.
Shanghai stocks shed 1.1%, keeping investors on alert over economic prospects in China, a huge buyer of commodities.
That said, recovery remains alive in the US, of course, with gross domestic product rising by an annualised 2.3% in the three months to June, data on Thursday showed.
While that was a little shy of Wall Street predictions for 2.5% growth, any disappointment was diluted by an upgrade to 0.6% (from a 0.2% decline) in the estimate for growth in the January-to-March quarter.
‘Drying will occur’
Still, weather is providing more support for gain bulls, with the near-ideal weather for row crops that the US has been enjoying set to turn less benign.
“Mostly net drying will occur as of the US Midwest through at least mid-August,” said Terry Reilly at Futures International, if adding that “with the lack of very hot temperatures and ample amount of sub-soil moisture, much of the summer crops will remain in favourable shape”.
More concerns actually surround the Mississippi Delta states, which will “see net drying, unwelcome at this point as stress should deteriorate crop conditions over the next two weeks.
“Traders should monitor late planted crops on dryland areas.”
Heat threat after all?
And Mr Reilly also cautioned that “traders should monitor ridge-building for the middle of the US next week into the following weekend”.
Indeed, the GFS model for August 5 is “showing temperatures of 110-112 degrees Fahrenheit (45 Celsius) over central Nebraska into south central South Dakota, and over 100 Fahrenheit (38 Celsius) over the western 25% of Iowa and south western Missouri”, said WxRisk.com.
However, the European weather model “offers a very different solution.
“The heat does not get into any portion of South Dakota or Nebraska or a Iowa with temperatures in Iowa and portions of South Dakota stay mostly in the 70s Fahrenheit”, the weather service said, adding that the European model is the one that it preferred, terming the GFS “fundamentally flawed”.
Improved export data
Whatever, the prospect of poorer weather was enough to keep investors reinjecting risk premium in early deals.
Especially after some improved US export sales data on Thursday, which indicated that lower prices were luring investors back in.
In corn, for instance, old crop sales, at 364,900 tonnes, “put total commitments for 2014-15 right at the US Department of Agriculture estimate” for the whole season, with a month left to go, CHS Hedging noted.
And new crop sales of 443,300 tonnes beat trade expectations and were the “second largest of the [2015-16] marketing year”.
France concerns
It also helped that FranceAgriMer officials lowered further their rating of the dryness-tested French corn crop, the European Union’s largest, pegging it at 59% “good” or “excellent”, down 3 points week on week.
Agritel also said that the area of corn farmers crop as silage, rather than grain, “will have to be increased due to lack of grass”, meaning less hay or grass silage for keeping livestock through winter.
Chicago corn for September rose by 0.7% to $3.75 ¾ a bushel as of 09:45 UK time (03:45 Chicago time), while the best-traded December lot added 0.6% to $3.86 a bushel.
‘Very strong’
Soybeans failed to keep up with that pace, despite their own decent export sales data, of 416,700 tonnes for 2014-15 and 899,100 tonnes for next season, data CHS termed “very strong”.
“Old crop sales were the biggest in 14 weeks since April 23,” and leaving commitments 3% ahead of the USDA forecast for 2014-15, with a month left to go.
“New crop sales were the second largest of the marketing year.”
That said, the cumulative 2015-16 sales remain well behind the pace of last year.
RJ O’Brien’s Richard Feltes noted that “private sector analysts are already trimming another 100m bushels off of the USDA’s 1.775bn-bushel 2015-16 US soybean export forecast, while standing ready to trim more if the US soy export pace does not accelerate soon”
‘Moisture conditions have greatly improved’
And as an extra pressure, crop data late on Thursday showed improvement in the crop of rival oilseed canola in the key Canadian province of Saskatchewan, following rain, with 56% rated “good” or “excellent”, up from 45% in the previous reading, two weeks before.
“Topsoil moisture conditions have greatly improved in much of the province, thanks to heavy rains early in the week,” provincial officials said.
Canola for January fell by 0.2% to Can$492.50 a tonne in Winnipeg, while in Chicago, November soybeans were up 0.25 cents at $9.50 ¼ a bushel, which may face a technical battle to climb back above its 100-day moving average at a little over $9.55 a bushel.
Spot August soybeans showed 0.4% higher at $9.93 ½ a bushel.
‘Exports have picked up’
As for wheat, it popped back over $5.00 a bushel in Chicago at one point, before easing to $4.99 ¾ a bushel, a rise of 0.7% on the day for the benchmark September soft red winter wheat contract.
US export sales data for the grain for 2015-16 (which started for wheat in May) were decent too, at 699,400 tonnes.
“Wheat exports have picked up the pace the last couple of weeks – this week was the second best sales figure of the year so far,” said Joe Lardy at CHS Hedging.
That said, Chicago futures remained on course for their biggest monthly drop in more than four years.
“The dryness issues in parts of Europe, Canada and Argentina remain but that is not leaving the market on the precipice of new crop downgrades,” said Tobin Gorey at Commonwealth Bank of Australia.
In fact, the proportion of Saskatchewan spring wheat rated good or excellent was, at 60%, up nine points in two weeks, according to the provincial data.
‘Bigger heads and bigger kernels’
And for US hard red spring wheat, the results of the northern Plains crop tour showed the best yield potential on data going back to 1992, of 49.9 bushels per acre, ahead of last year’s 48.6 bushels-per-acre reading, and the five-year average of 45.2 bushels per acre.
“We had good moisture since the spring, and cool weather,” said Ben Handcock, executive director of the Wheat Quality Council.
“It made bigger heads and bigger kernels than usual.”
Minneapolis spring wheat lagged, in rising by a modest 0.2% to $5.28 a bushel.
‘Hot and dry conditions’
The upbeat sentiment did not, however, spread to New York-traded cotton, despite US weather concerns spreading to the fibre too.
“Weather forecasters continue to predict hot and dry conditions for cotton crops in the US Delta,” CBA’s Tobin Gorey said.
Crops in Texas, the top cotton-growing state, “too are now sitting in drier soils to with, forecasters predict, not a lot of rain on the horizon.”
‘Looks somewhat vulnerable’
However, “whether or not these concerns are enough to hold up prices is another question” Mr Gorey said, noting technical setbacks.
In the last session, “December cotton futures closed on their lows with no signs of the buying that has emerged when prices have reached the levels in recent times.
“The market looks somewhat vulnerable.”
At the Rose Report, Louis rose noted that the “standard technical bias for the front month remains bearish, with the December contract again settling below all of its most-referenced simple moving average periods”.
December cotton fell by 0.3% to 63.54 cents a pound, among its lowest levels of the past three months.
