(Agrimoney) – New months have a reputation for lifting ag markets, bringing in fresh money.
There were some signs of buying in US markets, although Kuala Lumpur palm oil was enjoying a stronger session, soaring 3.0% to 2,282 ringgit a tonne for August delivery as of 09:50 UK time (03:50 Chicago time).
Earlier, it hit 2,284 ringgit a tonne, the highest for a benchmark contract for nearly three months.
US blending target
The gains represented something of a catch-up by palm oil, after soyoil’s surge late on Friday when the US Environmental Protection Agency unveiled revised biofuel blending mandate proposals, raised for biodiesel to 1.7bn gallons for 2015 and 1.8bn gallons for next year.
This implied higher consumption of vegetable oils (primarily soyoil in the US), the raw material for biodiesel.
“Soyoil use for biodiesel feedstock could increase 250-300m pounds for 2015, and an additional 380-440m pounds for 2016 and beyond,” said Terry Reilly at Chicago-based broker Futures International., noting that the US Department of Agriculture sees use for 2014-15 at 4.80bn pounds.
As an extra help to palm oil, Intertek came in with a chunky figure for Malaysian exports of the vegetable oil last month, at 1.55mn tonnes, a rise of 45%.
Pay deal
Soyoil itself added a bit to gains of the last session, taking on a further 0.6% to 33.54 cents a pound in Chicago for July delivery, although struggling to test yet the contract’s May high of 33.72 cents a pound.
One negative was the apparent resolution of a strike by grain crushers in Rosario, Argentina’s main export hub. (Argentina is the top exporter of soyoil.)
The Soyoil Workers Federation has reportedly settled for a 27.8% pay increase, retrospective to April.
But soybeans themselves for July fell 0.9% to $9.25 ½ a bushel, following soymeal, the other main soybean processing product, lower.
Soymeal dropped 1.0% to $302.60 a short ton. The feed ingredient is often spread against soyoil, ie investors will often balance positive soyoil bets with negative ones in soymeal (as they have done already to a great extent over the past two months, according to regulatory data).
‘Mixed bag’
Meanwhile, back to soybeans, and Benson Quinn Commodities detected a “mixed bag” of pricing signals.
“Cash markets are mixed with interior processors bidding up while crush margins continue to rally and [export] values lean weaker,” said Benson Quinn’s Nicholas Sax.
“South American producers continue to be active sellers and cash markets are reportedly backing off.”
The US weather, meanwhile, is seen as continuing to remain benign for this year’s US crop, proving enough rain to keep plants in the ground watered, but not so much as to cause widespread setbacks to sowings.
USDA weekly crop progress data later is expected to show “planting progress value near 75-80% complete versus 61% last week”, Mr Sax said.
‘Potentially surprising’
But what will the data show for wheat?
One of the reasons that wheat futures performed poorly last week was that the last weekly USDA crop progress report showed no significant damage from heavy rains.
However, will that show up this time?
At Global Commodity Analytics, Mike Zuzolo said that “crop conditions after the Memorial Day weekend did not factor-in heavy rains of that weekend,” something he said he had confirmed with a USDA official.
“This could make Monday afternoon’s crop conditions extra important and potentially surprising to the trade” in the wheat condition number, and perhaps the corn rating too.
Export battle
Mr Zuzolo took issue with another factor that depressed wheat prices last week – the Egyptian tender which showed offers of Russian grain at less than $200 a tonne on a CIF basis.
“Last week’s sale of Russian and Romanian wheat at below $200 a tonne including freight, in my view, is not going to be replicated very often,” he said, noting talk of dry weather in parts of Russia’s south, the main source of Russia’s wheat supplies for export.
He flagged reports that the “major exporting wheat regions in Russia of Rostov, Volgograd, and Krasnodar are all in need of rain in the next 10 days, or potential irreversible yield damage may occur”.
Besides, a US export price of E185 ($202) a tonne is not that far out of the running, he added.
‘Less worried about the weather’
Still, one factor mitigating against wheat did remain entrenched, in terms of a drier forecast for the US southern Plains, where winter wheat has been inundated.
This week “drier weather in southern areas will allow wetness concerns to ease”, said weather service MDA.
“The trade is probably now less worried about the weather in hard red winter wheat regions,” said Tobin Gorey at Commonwealth Bank of Australia.
“Weather forecasters now expect drier conditions around the southern Plains so the problems as they stand are unlikely to get a lot worse.”
Prices gain
Chicago wheat for July was flat at $4.77 a bushel.
Minneapolis spring wheat did better, up 0.4% at $5.32 ¾ a bushel for July, amid continuing concerns over dry and cool weather in Canada’s main growing areas, which also helped November canola for November gain 0.6% to Can$468.20 a tonne.
Earlier, the contract hit a near-three-month high of Can$469.10 a tonne.
Canola, as an oil-heavy oilseed, is also gaining particularly from the stronger vegetable oils market.
‘Little optimism for growth’
The gains in wheat were not replicated, however, in fellow grain corn, although the July contract was down a modest 0.1% at $3.51 a bushel.
Growing conditions remain largely benign for the US crop.
“Rains in south eastern [Midwest] areas will further improve moisture for corn and soybean growth,” MDA said.
Furthermore, the EPA adjustments to biofuel mandates were not viewed so positively for corn, in coming in at 13.4bn gallons for this year and 14bn gallons for 2016.
“Grind rates will remain stable but the EPA report offered little optimism for continued growth,” said Benson Quinn Commodities’ Nicholas Sax.
Cotton gains
Among soft commodities, cotton got off to a firm start, adding 0.3% to 64.55 cents a pound ion New York for July delivery, despite ideas of drier weather in the southern Plains, where rains have been a big threat to plantings.
(Texas is the top US cotton-producing state.)
Still, the relatively firm US export pace is providing support to markets, at a time when hedge funds have already slashed their net long position in New York cotton futures and options substantially, data late on Friday showed.
The managed money net long tumbled by more than 14,500 contracts in the week to last Tuesday, the most in six months, taking it to 27,475 lots.
Coffee reheated
But arabica coffee futures fared even better, gaining 2.8% to 129.70 cents a pound for July delivery.
Hedge funds may be keen to take profits on short positions, given that this trade is looking a little crowded.
The managed money net short position soared more than 15,000 lots in the latest week, the most on record, to take the net short in New York arabica coffee futures and options to a 17-month high of 18,682 lots.
