(Agrimoney) – If farmers in the US think prices are bad, just travel to the other side of the Atlantic, where growers are facing a stronger currency too. Just as the dollar on Wednesday fell below 90.0 against a basket of currencies for the first time since December 2014, so the euro is at its strongest against the greenback since that month too, cutting the competitiveness of eurozone exports.
“The euro is progressing over $1.23 versus dollar this morning,” Agritel noted.
‘Markets are continuing to crumble’
Indeed, the impact of the currency strength, and “as there is no weather adversity so far in the northern hemisphere”, means that European “markets are continuing to crumble”.
Paris wheat futures for March, in closing at E155.50 a tonne in the last session, remained near the contract low of E154 a tonne set last week, and down 2.2% so far in 2018 in euro terms, compared with a drop of less than 1% in Chicago futures in dollar terms.
Rapeseed futures for March stand down 1.5% so far this year in Paris, compared with a 2.5% gain in the main Chicago-traded oilseed, soybeans (although there are a number of other factors than currency, eg Argentine dryness, affecting this relationship).
This matters to growers when, according to Philippe Pinta chairman of French weat growers’ association AGPB, French growers currently produce wheat at around E175 a tonne (and have been selling at farmgate prices of some E130-135 a tonne).
‘Technicals haven’t developed’
At least US prices were enjoying some kind of recovery on Wednesday, adding 0.5% to $4.23 ¾ a bushel for March delivery in Chicago as of 09:50 UK time (03:50 Chicago time), regaining some of the ground lost in the last session.
Then the contract’s inability to break above chart hurdles such as the 50-day moving average were seen as cutting the pressure on funds to cover some of their large short position in Chicago futures and options.
“The potential for the winter wheat markets to rally has been and will continue to be tied to the potential for additional short covering by the funds,” Benson Quinn Commodities said.
“The technicals haven’t developed enough support to force short covering.”
‘Hard to embrace’
Sure, there are worries too over dryness in the US Plains, a major winter wheat growing region,
“The potential for issues in US hard red winter wheat crop are noted, but hard to embrace at this point in the calendar,” Benson Quinn Commodities said.
“While conditions aren’t ideal, the weather pattern for late February and March will have much more to say about potential production.”
What is more promising for wheat bulls is that at least “Chicago and Kansas City March contracts have dropped into the lower half of the recent trading range”, said Tobin Gorey at Commonwealth Bank of Australia.
“Traders might come back to the market at these lower levels since US competitiveness has now improved,” especially with help from the dollar too.
The rouble, by the way, was at 56.3 per $1, trading within an ace of seven-month lows, so undermining the competitiveness of Russia’s huge exportable surplus.
‘Leaving the door open for business’
Chicago corn futures were higher too, by 0.6% at $3.53 ¼ a bushel, popping back above their own 50-day moving average.
Besides dollar weakness, are worries over Argentine dryness beginning to have an impact, as they have in the soybean market?
“One would think if conditions slipped in Argentina, that corn traders might take note someday,” said Mike Mawdsley at First Choice Commodities, noting a local estimate that only 11% Argentina’s corn crop was rated good or excellent.
Benson Quinn Commodities flagged the potential for US export improvement, saying that Brazil appears out of the market after February, while fob basis levels are seen rising in Argentina and Ukraine”.
These factors “could be leaving the door open for business to pick up here in the US”.
‘Reached the limit’
Soybean futures themselves, meanwhile, actually proved the worst performer of Chicago’s big three, easing 0.1% to $9.85 ½ a bushel for March.
CBA’s Tobin Gorey flagged the extent to which the contract has already gained on Argentine dryness concerns.
“The worries about Argentina’s soybeans though are only worth so much – the weather premium has an upper limit,” he said, adding that a recent slower trading “is perhaps a sign that we have reached that limit”.
Meal vs oil
Soymeal was lower too, falling 0.3% to $338.50 a short ton, despite talk, noted by Terry Reilly at Futures International of the sale of “up 3 cargoes of US soymeal and one cargo from Argentina” to the Philippines.
That said, “the landing price was less than $10 ton between the two origins”, which might indicate that the Argentine woes need to deepen before its supplies are priced out of the market.
The soyoil-versus soymeal value figure returned back further the oil, which saw its share slip to the lowest in 17 months on Monday.
Soyoil futures for March added 0.7% to 32.74 cents a pound, helped by 1.0% rise to 2,518 ringgit a tonne in futures in rival vegetable oil palm oil in Kuala Lumpur, on talk of a steep fall in January production in Malaysia.
