(Agrimoney) – If there is one bet which has been a good one in grains this week, even amid a falling market, it is on a widening discount of hard wheat to soft wheat.
Kansas City-traded hard red winter wheat had managed to claw back much of its, unusual, discount, to Chicago-traded soft red winter wheat thanks to dryness concerns.
Hard red winter wheat is grown in the US Plains where, in southern areas, dryness concerns have been mounting, raising fears for the establishment of newly-seeded crop, planted ahead of the 2016 harvest.
However, forecasts of rain for the southern Plains have diluted those worries – and send Kansas City prices falling particularly hard.
‘Should help crop ratings’
“The Great Plains will see heavy rain over the next several days,” World Weather said.
The rainfall “should help overall crop ratings”, said Steve Freed at ADM Investor Services, with the US Department of Agriculture next Monday, in its weekly crop progress report, expected to reveal its first condition score for the winter wheat crop.
Last night’s crop progress report showed for winter wheat that sowings were 76% complete as of Sunday, up 12 points week on week, and a marginal 1 point behind the average pace.
“With three-quarters of the US winter wheat planted, the rains couldn’t have arrived at a better time,” said Terry Reilly at Chicago broker Futures International.
Rise and fall
The forecasts kept particular pressure on hard red winter wheat futures for December, which earlier on Wednesday saw their discount to Chicago soft red winter wheat reach $0.14 ¼ a bushel.
That matched the highest for the contract, and meant a large profit for anyone who bet on expansion in the premium, which began the week at $0.06 ¼ a bushel.
Still, that level, the highest for the December contract – and bringing a large profit for anyone who bet on expansion in the premium, which began the week at $0.06 ¼ a bushel – did provide a resistance to further movement.
It has to be said that it was not as if Chicago soft red winter wheat futures were performing strongly, with the improved weather in the US and elsewhere keeping pressure on values.
Fears have eased too over the former Soviet Union, where World Weather said that “southern Russia and Ukraine will see rain”, much needed for newly-seeded winter grains, although the weather service added that “temperatures will be on the cold side”.
‘Bumped up rainfall forecasts’
And dryness concerns are now even easing in Australia, where Tobin Gorey at Commonwealth Bank of Australia noted that “weather forecasters have bumped up their rainfall forecasts for southern parts of Australia’s winter crop regions, and pulled down temperatures in those regions too.
“Crop forecasters will be less inclined to cut their [production] forecasts with this better weather tack.”
Sydney wheat futures for January closed down 0.5% at Aus$281.50 a tonne, their weakest finish in nearly a month, and now down 8% from a high three weeks ago.
Back in Chicago, Chicago soft red winter wheat for December was down 0.3% at $4.84 ½ a bushel, as of 09:20 UK time (03:20 Chicago time), while Kansas City hard red winter wheat was 0.3% lower at $4.71 a bushel.
‘Monster one’
Nor did fellow grain corn fare too well either.
It’s been a week since corn and wheat futures last managed to find advance gears and close higher.
And corn didn’t look too keen in early deals to rediscover the experience, just lacking the news to warrant an injection of risk premium, with the US harvest continuing to progress well.
The USDA data overnight showed it hitting 59% as of Sunday, up 17 points week on week, and bang in line with market expectations (and ahead of the average of 54% by then).
“This past weekend was also a monster one for harvest progress,” said Tregg Cronin at Halo Commodity Company.
Futures International’s Terry Reilly said that “western Corn Belt producers that were nearly done harvesting soybeans switched to corn last week”.
And, on results, Steve Creed at ADM Investor Services said that “yields are coming in near the USDA estimate”, undermining hopes for a downgrade to the yield number yet lying in wait.
‘Harvest lows could be in’
OK, there is some hope that the end of the decline is not too far away for corn futures.
“Basis hasn’t been trending weaker now that harvest is over 50% complete on both corn and soybeans, a sign harvest lows could be in for both futures and basis,” Mr Cronin said, adding that “export and industrial demand seems to be strong enough for now to support cash premiums.
“Farmers will attempt to go home with as many bushels as possible,” rather than sell them at such weak values.
Still, corn futures eased a further 0.2% to $3.72 ¼ a bushel.
Mr Reilly said that “our medium term outlook on corn is for it to trade sideways. Look for December corn to trade in $3.55-3.85 a bushel range”
Export pace
In fact, soybean futures did do better, just, in adding 0.1% to $8.91 ¾ a bushel in Chicago for November delivery, shying away from a confrontation with 20-day and 50-day moving averages just below.
The crop progress data showed the US soybean harvest at 77% complete, up 19 points week on week, but actually 2 points behind market expectations.
Mr Cronin said that “the faster harvest wraps up the faster the market will be focusing solely on demand”, which for soybeans is not so bad, thanks to a rash of Chinese purchases of late.
US exports last week, as measured by cargo inspections, at 86.9m bushels were “well above the needed figure to hit USDA projections” for the full 2015-16, said CHS Hedging.
“Cumulative exports are running almost 15% above last year.”
‘Better rains’
Still, there are weather setbacks for the soybean market too, in terms of a better outlook for Mato Grosso, the top Brazilian soybean producing state, where “better rains are in the forecast”, CHS Hedging said.
In Brazil, soybean sowings are in their early stages, and look like topping the lower end of official forecasts, a senior official told an Amis conference on Monday.
On the more positive side for the oilseeds complex, Kuala Lumpur palm oil stood 0.8% higher at 2,293 ringgit a tonne on gains attributed to weakness in the ringgit, which makes Malaysian exports more affordable.
That said, the pace of Malaysian exports has been softer so far this month, with shipments for the first 20 days of October down 12.9% on the same period of September, cargo surveyor ITS said.
As of October 15, the pace of decline was a more modest 8.8%.
