Soggy US forecast lifts wheat futures anew

(AgriMoney) – Be careful what you wish for, it might come true. Winter wheat farmers in the US south might be mulling that old phrase, as rain they long prayed for lashes crops that were for so long tested by drought.

“Heavy rain is battering the Texas Panhandle and western Oklahoma, and additional rain is in the forecast through late Thursday,” Terry Reilly at Chicago-based Futures International said.

“In all, more than 5 inches of rain could fall locally across portion of hard red winter wheat country this week, raising the risk for disease and quality problems.”

‘Safe to assume some damage’

At Benson Quinn Commodities, Nicholas Sax said that weather forecasts “lean destructive to the hard red winter wheat crop.

“In particular was the five-day rainfall outlook which forecasted another 3-5 of rain in Oklahoma and northern Texas… areas that already have experience near record May moisture.

“Crop conditions are at risk and it safe to assume some damage is resulting.”

At Commonwealth Bank of Australia, Tobin Gorey said: “Weather forecasters continue to expect more rain, and so few opportunities for saturated soils to dry, over the next week or so in US hard red winter wheat regions.

“The trade will consequently continue to worry about wheat availability – and so sell only reluctantly – despite inventories being comfortable.”

‘Another shot of cold’

And it is not as if the threat further north to spring wheat from cold has gone away, albeit after being deemed to have caused only limited damage this week to crops, except canola.

(In fact, canola for July edged Can$0.20 lower to Can$458.30 a tonne in Winnipeg as of 09:40 UK time [03:40 Chicago time], up a modest 0.7% this week, although that is better than the drop elsewhere in the oilseeds complex of 1.0% in Chicago soybeans.)

“There are some forecasters calling for another shot of cold temperatures next week,” CHS Hedging noted.

There are some worries about dryness in parts of Canada’s Prairies too.

‘Prone to shed some risk premium’

It has to be said that not all the thinking on wheat is quite so price positive, with Richard Feltes at RJ O’Brien, for instance, noting that “price pressure from US harvest wheat hedging is still ahead”.

In fact, the maturity of southern Plains winter wheat is part of the problem in as far as weather goes, in making crop more susceptible to moisture damage.

Still, Mr Feltes highlighted that the approach of the hard red winter wheat harvest may help make the market prone to shed some risk premium”, with harvest time meaning a ramp up in crop volumes and pressure on prices.

He added too that the “near-term US wheat export sales outlook is still bleak”.

Data later

More will be seen on that later, with weekly US Department of Agriculture data on crop export sales expected to coming in at at best 50,000 tonnes for 2014-15 (which ends this month), and potentially net cancellations of 200,000 tonnes.

For next season, sales are forecast at 200,000-350,000 tonnes.

For now, wheat for July stood up 0.8% at $5.17 a bushel in Chicago, earlier touching its 100-day moving average at $5.18 a bushel.

Hard red winter wheat itself stood up 0.6% at $5.48 ½ a bushel in Kansas City.

‘Near-ideal conditions’

Wheat’s performance helped the row crops too, with investors appearing unwilling to let the grain’s premium over corn run too far above $1.50 a bushel.

Weather for the main Corn Belt growing areas is proving benign, with Benson Quinn’s Nicholas Sax noting that the “corn crop is benefiting from near-ideal conditions, and weather forecasts continue to appear favourable to crop progress”.

The USDA is expected next week to give its first condition scores this season for the crop, with traders “anticipating reported ratings near record high level”, Mr Sax said.

“Illinois reported its corn crop on a report on Monday at 82% in the good-or-excellent categories.”

‘Another big week’

Still, on the demand side, there was significant positive comment over weekly ethanol production data released on Wednesday, which showed a jump of 46,000 barrels per day to 958,000 barrels per day in output last week of the biofuel, made in the US mainly from corn.

That was the “largest week-on-week increase since the week ending December 17, 2010, and largest output level since February 2015,” Futures International’s Terry Reilly said, terming the data “impressive”.

“Production is up 3.0% from last month and up 3.6% from last year.”

CHS Hedging said that “ethanol production had another big week”, and that “with weaker corn futures and basis levels, [production] margins should expand”.

Corn for July gained 0.8% to $3.63 a bushel.

Soy gains

That in turn helped soybeans for July gain 0.4% to $9.44 ¾ a bushel, moving in the direction that might have been expected for the last session.

“It is interesting to note the beans settled lower ahead of the USDA export sales report, which is usually not the case,” Mr Sax noted.

Soybean export sales are expected at 100,000-250,000 tonnes for this season and 150,000-350,000 tonnes for 2015-16.

Returning to canola, in the oilseeds market there was notable talk over a decision by China to reopen to imports of Indian rapeseed meal, after a ban imposed three years ago on the finding of a toxin.

Mr Reilly saw “important” market implications for both countries, if Indian prices become attractive.

“Back in 2011, India supplied roughly half of China’s rapeseed meal imports of around 650,000 tonnes.”

‘Soggy conditions’

Among soft commodities, there were some worries for cotton on a technical perspective after the July contract in the last session closed back below its 50-day moving average.

“The ICE July contract finally fell through technical support to suggest that a rally – emanating from mid‑March – is now over,” said CBA’s Tobin Gorey.

Still, he also flagged the “soggy conditions on the US southern Plains” that are slowing sowings of the fibre in a key producing region”.

And with the extra damp to come, New York cotton for July gained 0.7% to 64.58 cents a pound.